PAPER  MOJ[EY: 


A COI.I.ECTION 

OF 

PRINCIPAL  HISTORICAL  FACTS  BEARING 
UPON  THE  CURRENT  FINANCIAL 
DISCUSSION. 


BY 

II.  W.  EICHAEDSOK 


NEW  YORK: 

D.  APPLETON  AND  COMPANY, 
549  AND  651  BROADWAY. 

1879. 


f? 


COPTEIGHT  BY 

D.  APPLETON  AND  COMPANY, 
1878. 


1 wy  . 


9 


OOl^TE^TS. 


I.  The  Eesumption  Act  . * 

II.  The  Geeenback:  Theoey  . 

III.  The  Continental  Cueeenoy  . 
lY.  The  Feenoh  Assignats 
Y.  Old  Tenoe  Bills 
YL  The  Bank  of  Yenioe 
YII.  John  Law’s  Legal-Tendee  ISTotes 
YIII.  The  Demand  ITotes  of  1861 
IX.  The  National  Ceedit  . 

X.  The  Recent  Example  of  Feance. 
XI.  Cheap  Money  . 

XII.  Inteeconyeetible  Bonds  . 

XIII.  The  Ameeioan  System  of  Finance 


. 5 

8 

. 12 
18 
. 22 
80 
. 82 
8r 

. 40 
44 
. 47 
52 
. 56 


PAPEE  MOl^ET. 


Tifp:  sisuMPTION  ACT, 

) V5  ^ ^ J > V yJt  ^ 

'■>  ^ ’ ’ ' ’ ' ' 

Nearly  ten  years  afte.^  llie;X*los^  of ^ the  civil  war,  the 
Congress  of  the  United  States  passed  ‘‘an  act  to  provide 
for  the  resumption  of  specie  payments.”  The  bill  was 
signed  by  President  Grant  on  the  14th  of  J anuary,  1875. 
Specie  payments  had  then  been  suspended  for  thirteen 
years,  but  the  premium  on  gold  had  dropped  from  the  ex- 
cessive war-rates  to  42  in  1865,  and  had  gradually  declined 
to  12  in  1875.  Diminishing  at  the  same  rate,  it  would 
have  disappeared  in  four  years  more. 

The  act  was  in  three  sections  : 1.  Congress  directed 
the  coinage  of  silver  to  replace  the  fractional  paper  cur- 
rency. 2.  The  charge  of  one-fifth  of  one  per  cent,  for 
coining  gold  was  abolished,  so  as  to  prevent  the  owners 
of  gold  bullion  from  sending  it  over  seas  to  the  British 
mint,  where  no  such  charge  was  made.  3.  The  restriction 
of  the  volume  of  the  bank-note  currency  to  $354,000,000 
was  repealed,  so  that  anybody  who  chose  might  engage 
in  the  banking  business,  and  all  the  banks  might  issue  as 
many  notes  as  should  be  wanted,  provided  only  that  such 
notes  should  be  fully  protected  by  securities  deposited  for 
that  purpose  with  the  treasurer  of  the  United  States.  It 
was  furthermore  declared  that,  on  and  after  the  first  of 
January,  1879,  the  secretary  of  the  treasury  shall  redeem 


6 


PAPER  MONEY. 


in  coin  tlie  United  States  legal-tender  notes  tlien  outstand- 
ing, on  their  presentation  for  redemption  at  the  office  of 
the  assistant-treasurer  of  the  United  States  in  New  York, 
in  sums  of  not  less  than  fifty  dollars.  To  provide  money 
for  this  purpose,  the  secretary  of  the  treasury  was  au- 
thorized to  use  ary  surplus  revenue  not  otherwise  disposed 
of,  and  to  sell,  at  UQt/less  thaii  .par  in  coin.  United  States 
bonds  bearing  interest  at  tlie  i’'afce  of  five,  four  and  one- 
half,  or  four -pet  pent.'  ' : ' . ; ' ; 

Senator  Sherman,  now  secretary  of  the  treasury,  re- 
ported the  bill  to  tie  Senat  e as  chairman  of  the  committee 
on  finance.^  In  explaining  Its  provisions,  he  called  atten- 
tion to  the  fact  that  the  committee  had  followed  the 
example  of  the  British  Parliament,  which  provided  by 
the  bank  act  of  1819  for  a resumption  of  specie  pay- 
ments in  1823,  after  an  interval  of  four  years.  We  de- 
clare the  time  when  specie  payments  shall  be  resumed,” 
he  said,  in  order  to  give  fair  notice,  so  that  market  val- 
ues for  the  future  may  be  adjusted,  and  so  that  people 
will  prepare  themselves  for  resumption.”  The  result  has 
been  precisely  what  he  anticipated.  Market  values  have 
been  adjusted  to  the  specie  standard.  In  January,  1878, 
a year  before  the  time  set  for  resumption,  the  premium 
on  gold  had  declined  to  a fraction  over  one  per  cent.  ; in 
March  the  quotations  were  a fraction  below  one  per  cent. 
In  other  words,  the  paper  dollar  had  appreciated  in  three 
years  from  89  cents  to  99  and  a fraction. 

These  three  years  were  years  of  severe  commercial 
depression.  After  the  civil  war  we  were  poor,  but  it  is 
with  nations  as  with  individuals  : if  we  have  money  we 
spend  it.  The  vast  sum  of  paper  currency,  though  every 
dollar  of  it  was  borrowed,  led  us  into  all  sorts  of  extrava- 


Congressional  Record^  vol.  iii.,  p.  186. 


THE  KESUMPTION  ACT. 


7 


gant  expenditures  and  unprofitable  enterprises.  Secretary 
McCulloch,  in  1865,  had  advised  a gradual  reduction  of 
the  volume  of  the . currency,  but  the  small  reduction 
which  he  was  authorized  to  make  occasioned  -a  sharp 
contraction  of  credits.  Market  values  began  to  fall ; 
creditors  began  to  doubt  the  ability  of  their  debtors  to 
pay  in  money  of  full  value  what  they  had  promised  to 
pay  in  depreciated  currency.  If  the  secretary  of  the 
treasury  had  continued  to  draw  in  the  legal-tender  notes, 
a general  liquidation  v/ould  have  followed,  and  the  coun- 
try was  much  better  prepared  for  it  then  than  it  was 
when  the  day  of  reckoning  came  in  1873.  So  urgent  was 
the  remonstrance,  however,  that  Congress  directed  the 
secretary  to  desist,  and  so  we  went  on  building  railroads 
and  factories  and  court-houses  and  custom-houses,  and 
importing  foreign  luxuries,  until  in  October,  1873,  there 
came  a crash  in  New  York.  One  after  another  the  great 
banking  houses  and  trust  companies  went  down,  and  a 
panic  ensued  which  compelled  the  stock  exchange,  for  the 
first  time  during  its  existence,  to  close  its  doors,  and  the 
banks  to  suspend  even  currency  payments.  The  exchange 
was  closed  for  ten  days  ; the  bank  suspension  lasted  for 
forty  days.  When  the  dust  cleared  away,  it  was  found 
that  the  market  had  broken  down  because  it  was  over- 
loaded with  evidences  of  debt  owed  by  railroads,  states, 
cities,  towns,  manufacturing  corporations,  and  mining 
companies.  We  have  been  settling  up  those  debts  and 
reorganizing  our  industries  ever  since.  ^ 

Senator  Thurman  remarked,  while  the  bill  for  the  re- 
sumption of  specie  payments  was  pending,  that  there 
would  be  no  increase  of  bank  circulation  under  the  act, 

^ A concise  account  of  the  panic  of  IS'ZS,  by  Mr.  John  Jay  Knox, 
Comptroller  of  the  Currency,  will  be  found  in  the  Finance  Report  of 
that  year,  p.  90. 


8 


PAPER  MONEY. 


until  after  the  liquidation,  which  had  at  last  become  in- 
evitable. After  the  panic  of  1819,  he  said,  business  was 
stagnant  for  four  years  ; after  the  panic  of  1837,  for  five 
years  ; after  the  panic  of  1857,  until  the  war,  in  1861, 
changed  the  face  of  things  ; never  in  any  case  had  the 
depression  lasted  less  than  four  years  ; and  until  there 
was  more  business  there  would  be  no  need  of  more  money. 
He  was  right.  The  banks,  though  perfectly  free,  have 
not  increased  them  circulation  ; they  have  reduced  it  from 
$354,000,000  in  1875  to  $324,000,000  in  1878  ; and  this 
fact  shows  that  there  has  been  no  lack  of  money  since 
the  passage  of  the  resumption  act.  The  stagnation  of 
business,  after  the  crises  of  1819,  1837,  and  1857,  proves 
that  the  recent  depression  would  have  occurred  if  the 
act  of  1875  had  never  been  passed.  Finally,  the  panic 
of  1873  was  a conclusive  reply  to  the  declaration  of  Gen- 
eral Butler  in  1869,  that  the  use  of  an  inconvertible  paper 
currency  is  a potent  remedy  for  all  financial  diseases 
which  beset  a nation.^ 


II. 

THE  GREENBACK  THEORY. 

Until  after  the  passage  of  the  resumption  act,  there 
was  no  organized  movement  in  favor  of  a permanently 
irredeemable  currency.  General  Butler  did  indeed  con- 
tend, in  January,  1869,  that  a paper  currency  interchange- 
able with  interest-bearing  bonds  might  be  stable  in  value 
and  elastic  in  volume,  without  redemption  in  coin  ; but 
the  dangerous  suggestion  went  out  on  the  winds  and  no 

^ Congressional  Glohe^  January  12,  1869,  p.  309. 


THE  GREENBACK  THEORY. 


9 


audible  response  came  back.  It  seemed  that  the  Ameri- 
can people,  instructed  by  the  experience  of  their  ancestors 
and  by  the  history  of  other  nations,  were  too  enlightened 
to  entertain  a project  so  many  times  tried  and  found 
wanting.  Their  representatives  in  Congress  laughed  at 
General  Butler’s  certificates  of  value,”  exchangeable 
for  other  pieces  of  paper,  which  in  turn  were  to  be  pay- 
able in  the  original  certificates.  His  juggling  bill,  pro- 
posing to  create  value  by  a hocus-pocus  of  worthless  cer- 
tificates and  equally  worthless  bonds,  did  not  receive  the 
compliment  of  a vote.  In  March,  1869,  Congress  passed 
^^an  act  to  strengthen  the  national  credit” — an  act  de- 
claring in  substance  the  doctrine,  afterward  affirmed  by 
the  Supreme  Court,  that  in  the  laws  of  the  United  States 
a dollar  is  not  an  abstract  term,  but  means  always  25.8 
grains  of  gold,  or  41 2|-  grains  of  silver,  nine-tenths  fine. 
The  bonds  promising  to  pay  dollars,  the  act  said,  must  be 
paid  in  dollars  of  this  kind,  and  the  faith  of  the  United 
States  was  also  solemnly  pledged  to  make  provision  at 
the  earliest  practicable  period  for  the  redemption  of  the 
legal-tender  notes  in  coin.^ 

The  next  year,  when  the  funding  bill  was  before  the 
House  of  Representatives,  General  Butler  had  so  far 
changed  his  mind  that  he  favored  the  payment  of  the 
new  bonds  in  coin,  declared  that  the  taxes  were  dis- 
counted in  the  rate  of  interest  and  the  bonds  should  be 
exempt  from  further  taxation,  and  offered  an  amendment 
calling  for  the  payment  of  the  people’s  currency,  the 
greenbacks,  in  coin.”  ^ The  funding  bill  passed  the  Sen- 
ate, 33  to  10,  and  the  House,  128  to  43.  It  had  previous- 
ly appeared  that  a considerable  number  of  the  citizens  of 

^ Revised  Statutes,  § 3693. 

2 Congressional  Glohe^  June  30,  1870,  pp.  6019,  5024;  July  1,  p. 


10 


PAPER  MONEY. 


the  United  States  favored  the  payment  of  the  bonds  in 
depreciated  paper  ; but  this  was  believed  to  be  only  a 
temporary  aberration.  It  was,  in  fact,  a premonitory 
symptom  of  that  fatal  delusion  from  which  no  people 
wholly  escape  after  any  wide  departure,  in  their  daily 
transactions,  from  a just  standard  of  values.  It  is  the 
alchemist’s  dream  of  modern  times,  that  by  some  cunning 
trick  of  legislation  value  may  be  imparted  to  a material 
in  itself  valueless.  It  can  never  be  done  ; out  of  nothing 
comes  nothing  ; but  the  spectacle  of  a shifting  standard 
of  value  always  breeds  confusion  in  men’s  minds,  as  surely 
as  their  brains  begin  to  v/hirl  when  they  look  down  a 
dizzy  height. 

When  the  resumption  act  was  passed  in  1875,  a presi- 
dential contest  was  already  impending.  The  election  of 
1872  had  apparently  settled  the  question  about  the  pay- 
ment of  the  bonds.  The  new  question,  about  the  pay- 
ment of  the  notes,  presently  emerged.  On  May  18,  1876, 
a national  mass  convention  was  held  at  Indianapolis,  and 
demanded  the  immediate  and  unconditional  repeal  of  the 
resumption  act.  This  was  the  beginning  of  the  Indepen- 
dent Greenback  movement.  On  June  28,  1876,  the  na- 
tional Democratic  convention  met  at  St.  Louis,  and  de- 
nounced the  resumption  act  as  a hindrance  to  resump- 
tion.” General  Ewing,  of  Ohio,  objected  to  this  phrase, 
and  offered  an  amendment  simply  demanding  the  repeal 
of  the  act.  The  amendment  failed,  219  to  550.  Almost 
a third  part  of  the  convention  was  even  then  in  sympathy 
with  the  Greenback  movement.  In  November,  1876,  the 
nominees  of  the  Indianapolis  convention,  Peter  Cooper,  of 
New  York,  and  Samuel  F.  Cary,  of  Ohio,  received  81,737 
votes  in  twenty-four  states,  the  least  number  being  44  in 
California,  and  the  greatest  17,233  in  Illinois. 

In  1877,  the  new  party  was  industriously  perfecting 


THE  GREENBACK  THEORY, 


11 


its  organization  throughout  the  country,  and  on  Febru- 
ary 22,  1878,  twenty-eight  states  were  represented  in  a 
national  convention  at  Toledo,  where  a new  platform 
was  carefully  elaborated,  and  the  party  was  styled  the 
l^ational  party,  though  the  name  Greenback  still  clings 
to  it. 

How  rapidly  the  new  doctrines  have  spread  may  be 
seen  by  a glance  at  the  growing  vote  in  a conservative 
New  England  state,  where  in  1875  the  resumption  act  was 
welcomed  with  universal  acquiescence.  In  1876,  Maine 
gave  Peter  Cooper  663  votes  ; in  1877,  the  Greenback 
candidate  for  governor  received  5,291  votes  ; in  1878,  the 
new  party  has  elected  two  congressmen  and  polled  a vote 
of  41,404  for  governor. 

The  Greenback  theory,  at  first  nebulous  and  obscure, 
has  been  gradually  defined,  in  the  process  of  discussion, 
and  may  now  be  formulated  in  six  propositions  : 

1.  There  should  have  been  no  interest-hearing  debt.  The 
expenses  of  the  war  should  have  been  paid  in  legal-tender  treas- 
ury notes. 

2.  Such  notes,  receivable  for  all  dues,  public  and  private, 
would  have  circulated  at  par  with  gold  and  silver.  The  legal- 
tender  notes  which  were  issued  went  below  par  because  they 
were  not  receivable  for  customs. 

3.  As  the  legal-tender  notes  in  which  the  debt  was  expressed, 
when  it  was  contracted,  were  depreciated,  the  attempt  to  pay  the 
debt  in  a currency  of  full  value  is  unjust  to  the  tax-payers. 

4.  It  is  necessary,  therefore,  to  give  up  the  attempt  to  resume 
specie  payments ; to  make  our  paper  currency  receivable  for  all 
dues ; and  to  pay  off  the  bonds  in  paper  and  stop  the  accumula- 
tion of  interest. 

5.  This  increase  of  the  volume  of  currency  will  raise  prices; 
but  if  they  are  raised  uniformly,  business  will  adjust  itself  to  the 
new  level,  and  no  harm  will  be  done. 

6.  It  is  the  fall  of  prices  which  brings  disaster.  After  the  level 


12 


PAPEE  MONEY. 


is  established,  fluctuations  may  be  prevented,  either  by  regulating 
the  volume  of  currency  by  the  census,  so  much  jper  capita  ; or  by 
the  automatic  action  of  an  interconvertible  bond  at  a low  rate  of 
interest ; or  by  a combination  of  both  methods,  fixing  the  total 
issue  by  the  census,  and  allowing  the  amount  in  circulation  to 
adjust  itself  to  the  wants  of  trade  through  the  agency  of  the  inter- 
convertible bond. 

The  naked  proposition  for  1880  is  the  repeal  of  the 
resumption  act.  The  opposition  cannot  control  two-thirds 
of  both  houses  of  Congress,  and  the  President’s  veto  will 
protect  the  act  until  after  the  4th  of  March,  1881.  Un- 
til that  time,  the  discussion  will  continue  ; and  it  is  evi- 
dent that  General  Butler’s  extraordinary  canvass  in  Massa- 
chusetts was  planned  for  the  purpose  of  making  him  the 
National  Greenback  candidate  for  president. 

Although  the  resumption  act  is  the  pivot  of  the  dis- 
cussion, the  whole  subject  of  paper  money  is  involved  ; 
and  there  is  but  one  way  in  which  any  satisfactory  con- 
clusion can  be  reached.  Abstract  speculation  is  unscien- 
tific and  childish  ; the  experience  of  other  times  and  other 
communities  must  guide  us.  It  is  the  condition  of  prog- 
ress, that  we  shall  not  forget  the  errors  and  repeat  the 
mistakes  of  former  generations. 


III. 

THE  CONTINENTAL  CUERENCY. 

The  Greenback  theory  asserts,  first,  that  the  expenses 
of  the  war  should  have  been  paid  in  treasury  notes.  That 
experiment  was  tried  by  our  ancestors  during  the  war  of 
the  Revolution,  with  a result  to  which  General  Butler  re- 
ferred in  a speech  at  New  Haven,  August  20,  1878.  On 


THE  CONTINENTAL  CURKENCY. 


13 


that  occasion  he  made  three  separate  statements,  which 
ought  to  be  considered  together.  He  said  that  the  Conti- 
nental currency  performed  a great  service  for  the  colo- 
nies ; that  it  was  wise  to  repudiate  that  currency,  when 
it  became  depreciated  ; and  that  we  ought  to  issue  more 
greenbacks  now.  This  means,  and  can  only  mean,  that 
General  Butler  is  willing  to  see  the  greenback  currency 
follow  the  Continental  currency  into  discredit  and  ulti- 
mate repudiation.  Let  us  see  what  the  experience  was, 
which  he  invites  us  to  repeat. 

The  colonies  had  received  a severe  lesson  in  the  matter 
of  paper  money,  before  the  Revolution.  In  1749  the  old 
tenor-paper  issues  in  New  England  were — 


Massachusetts. . 
New  Hampshire 
Rhode  Island. . . 
Connecticut . . . . 


£2,466,712 

450.000 

550.000 

281.000 


In  1750,  Massachusetts  redeemed  her  whole  issue  at 
the  market  value  in  coin,  which  was  about  nine  per  cent., 
and  resumed  specie  payments,  earning  thereby  the  desig- 
nation of  the  silver  colony.”  The  result  was  that  trade 
revived,  shipbuilding  increased,  and  the  fisheries,  which 
had  been  declining,  began  to  prosper.  Connecticut  un- 
dertook to  contract  her  currency  gradually.  Rhode  Isl- 
and went  on  expanding,  and  the  West  India  trade  slipped 
away  from  Newport  to  Salem  and  Boston.  In  1774  Mas- 
sachusetts was  out  of  debt.  In  1775  representatives  of 
the  New  England  colonies  met  to  consult  on  the  prospect 
of  war  with  the  mother  country,  and  it  was  agreed  that 
the  Rhode  Island  and  Connecticut  paper,  which  was  all 
the  money  they  had,  should  be  allowed  to  pass  in  Massa- 
chusetts. 

This  was  the  condition  of  New  England,  when  the 


14 


PAPER  MONEY. 


representatives  of  all  tlie  colonies,  in  the  same  year,  as- 
sembled in  the  Continental  Congress.  This  Congress 
might  invite  contributions  from  the  colonies,  but  had  no 
power  to  require  the  payment  of  a tax.  The  members 
had  been  accustomed  to  paper  issues.  It  is  a singular 
proof  of  the  plausibility  of  the  theory  of  paper  money, 
that  Franklin,  in  spite  of  his  strong  common  sense,  was 
fully  persuaded  that  paper  issues  upon  the  faith  of  the 
Continent  would  be  equivalent  to  gold  or  silver.  The 
first  issue,  in  August,  1775,  was  for  300,000  Spanish  dol- 
lars, redeemable  in  three  years.  It  was  contended  that 
the  colonies  must  consent  to  taxation,  but  this  suggestion 
was  silenced  with  the  reply  that  it  would  be  wicked  to  tax 
the  people  when  the  Congress  could  get  money  by  the 
cartload  from  the  printing  office.  It  was  argued  too,  just 
as  the  advocates  of  the  same  kind  of  money  now  argue, 
that  the  Continental  currency  was  the  safest  that  could 
be  devised,  because  there  was  no  danger  that  it  would  be 
exported.  So  the  ^‘American  system  of  finance”  v/as 
inaugurated. 

By  1776,  the  Continental  currency  amounted  to  $9,- 
000,000,  and  began  to  depreciate.  The  Congress  passed 
harsh  measures  to  sustain  the  credit  of  the  bills,  but  to 
no  purpose.  Committees  of  safety  undertook  to  punish 
tradesmen  who  refused  to  sell  their  goods  for  what  was 
considered  a fair  price.  All  in  vain.  The  issues  con- 
tinued to  multiply  and  to  depreciate,  until,  in  1779,  over 
$350,000,000  had  been  issued,  and  the  whole  amount  was 
worth  not  more  than  $7,000,000  in  coin.  Coin  had  com- 
pletely disappeared.  The  Congress  knew  not  how  to  pro- 
vide for  the  army,  and  began  too  late  to  call  on  the  colo- 
nies for  taxes.  The  French  alliance  saved  the  colonies 
from  destruction,  not  so  much  by  military  aid  as  by  ena- 
bling them  to  procure  loans  in  Europe  so  as  to  continue 


THE  CONTINENTAL  CURRENCY. 


15 


the  struggle.  In  the  spring  of  1780,  the  bills  were  worth 
only  two  cents  on  the  dollar,  and  ceased  to  circulate.  This 
was  the  darkest  period  of  the  war,  the  spring  after  the 
memorable  winter  at  Valley  Forge  ; but  it  was  tho  dark- 
ness that  precedes  the  dawn.  Specie  came  into  circulation 
gradually  as  the  bills  disappeared  ; and  in  October,  1781, 
Cornwallis  surrendered  at  Yorktown,  and  the  war  was  over. 

It  is  evident  that  the  Continental  currency  did  not 
save  the  colonies,  as  General  Butler  pretends,  but  came 
near  betraying  them  to  their  destruction.  If  it  had  pre- 
served the  republic,  it  would  have  been  at  a cost  of  pri- 
vate wrong  which  nothing  but  the  exigency  of  war  could 
excuse.  It  is  proposed  now  to  try  the  same  plan  in  a time 
of  profound  peace.  Let  us  see  first  how  the  earlier  ex- 
periment affected  private  interests. 

Maine,  during  the  period  from  1775  to  1780,  was  a 
part  of  Massachusetts,  and  Parson  Smith’s  diary,  at  Fal- 
mouth, is  as  good  a contemporary  record  as  can  be  found.' 
Here  are  some  extracts  : 


1778. 

October  30. — It  is  a melancholy  time  upon  many  accounts. 
Lawful  money  is  reduced  to  be  worth  no  more  than  old  tenor. 
Creditors  don’t  receive  an  eighth  part  of  their  old  debts,  nor  min- 
isters of  their  salaries. 

1779. 

January  28. — Congress  have  called  in  fifteen  millions  of  their 
dollars  by  way  of  tax  this  year ; two  million  dollars  is  the  part  of 
our  state. 

^ The  Rev.  Thomas  Smith  was  the  first  regularly  ordained  minister  in 
Falmouth,  afterward  Portland.  He  graduated  at  Harvard  College  in  1720, 
and  was  pastor  of  the  first  parish  at  Falmouth  from  1727  until  he  died, 
in  1795.  His  journal  was  begun  in  college,  and  continued  until  he  was 
eighty-six  years  old.  It  was  first  published  in  1821,  and  is  a standard 
authority  on  all  matters  of  local  history. 


16 


PAPER  MONEY. 


« 


April  1. — There  is  a grievous  crj  for  bread  in  all  the  seaport 
towns,  and  there  is  but  little  meat  and  no  fish  yet. 

April  7. — Indian  meal  is  sold  at  30  dollars  a bushel. 

April  27, — I hear  wood  is  52  dollars  a cord  in  Boston,  and  flour 
at  £50  per  hundred,  i.  e.,  a barrel  is  more  than  my  whole  salary. 

May  8. — Corn  is  now  sold  at  35  dollars  a bushel,  and  coffee  at 
3 dollars  a pound. 

June  1, — ^Molasses  is  raised  to  16  dollars;  coffee,  4;  sugar,  3. 

June  10. — A man  asked  74  dollars  for  a bushel  of  wheat  meal. 

June  11, — Green  peas  sold  at  Boston  at  20  dollars  a peek ; 
lamb  at  20  dollars  a quarter ; board,  60  dollars  a week. 

June  17. — We  bought  three  pounds  of  halibut  for  a dollar. 

August  23. — We  bought  a pound  of  tea  at  19  dollars. 

November  15. — Parish  meeting  about  salary.  Voted  to  do 
nothing.  22d. — Captain  Sanford  brought  me  400  dollars,  gath- 
ered by  subscription. 

December  23. — Wood  is  70  dollars  a cord ; coffee,  8 dollars  a 
pound. 

1780. 

March  2^. — Young  Mussey  asks  500,  i.  e.,  above  £1,100  for 
a hat ; laborers,  30  a day. 

October  2, — The  Tender  act  repealed  lately. 

1781. 

August  18. — Wood  is  at  2 dollars  a cord;  never  so  cheap. 
22d. — There  is  only  hard  money  passing,  and  little  of  that. 

Parson  Smith  was  now  nearly  eighty  years  old,  and 
Mr.  Deane  had  been  employed  as  his  colleague.  Mr. 
Deane  also  kept  a diary,  by  which  it  appears  that  the 
price  of  a pound  of  tea  in  1773  was  $1.  In  1779,  when 
Parson  Smith  paid  $19  for  the  same  luxury,  it  was  really 
much  cheaper,  as  a dollar  in  silver  was  then  worth  twenty- 
nine  dollars  in  currency.  In  May,  1781,  Mr.  Deane  made 
a journey  to  Boston.  On  his  way  up  he  paid  £4  16^.  O. 
T.  for  his  ferriage  at  Portsmouth  ; on  his  return  he  paid 
a pistareen  in  silver  at  the  same  place. 


o 


THE  CONTINENTAL  CURRENCY. 


17 


This  confusion  was  the  golden  opportunity  for  specu- 
lators. Laborers  received  $30  a day,  but  it  took  more 
than  two  days’  work  to  pay  for  a cord  of  wood  or  a bushel 
of  corn  meal.  There  are  few  families  which  have  not 
kept  some  traditions  of  losses  at  that  time.  A lady  in 
1779,  for  example,  complained  through  the  public  press, 
that  her  guardian,  having  invested  her  fortune  six  years 
before  in  real  estate,  had  kept  the  land  and  paid  her  in 
legal-tender  bills.  Pelatiah  Webster,  in  his  political 
essays,  published  in  1791,  says  of  the  Continental  cur- 
rency : 

‘‘  If  it  saved  the  state,  it  has  also  polluted  the  equity  of  our 
laws,  turned  them  into  engines  of  oppression  and  wrong,  cor- 
rupted the  justice  of  our  public  administration,  destroyed  the 
fortunes  of  thousands  who  had  most  confidence  in  it,  enervated 
the  trade,  husbandry,  and  manufactures  of  our  country,  and  went 
far  to  destroy  the  morality  of  our  people.” 

It  is  little  v^onder  that  the  Federal  Constitution, 
framed  in  1787,  provided  that  no  state  shall  emit  bills 
of  credit,  or  make  anything  but  gold  or  silver  coin  a 
tender  in  payment  of  debts.”  The  men  of  that  time  had 
a wholesome  distrust  of  legal-tender  paper.  Mr.  Madison, 
commenting  in  the  Federalist  ^ upon  this  provision  of  the 
Constitution,  says  : 

“ The  extension  of  the  prohibition  to  bills  of  credit  must  give 
pleasure  to  every  citizen  in  proportion  to  his  love  of  justice  and 
his  knowledge  of  the  true  springs  of  public  prosperity.  The  loss 
which  America  has  sustained  since  the  peace,  from  the  pestilent 
effects  of  paper  money  on  the  necessary  confidence  between  man 
and  man,  on  the  necessary  confidence  in  the  public  councils,  on 
the  industry  and  morals  of  the  people,  and  on  the  character  of 
republican  government,  constitutes  an  enormous  debt  against  the 


I 


^ The  Federalist^  No.  44. 


18 


PAPER  MONEY 


states  chargeable  with  this  unadvised  measure,  which  must  long 
remain  unsatisfied ; or  rather,  an  accumulation  of  guilt,  which 
can  be  expiated  no  otherwise  than  by  a voluntary  sacrifice  on 
the  altar  of  justice  of  the  power  which  has  been  the  instrument 
of  it.” 

Nor  Y/as  it  tlie  intention  tliat  Congress  should  usurp 
the  dangerous  power  thus  surrendered  by  the  states.  A 
proposition  to  give  Congress  authority  to  emit  bills  of 
credit  was  defeated  in  the  Constitutional  Convention  by 
the  votes  of  nine  states  to  two.  The  Supreme  Court  of 
the  United  States,  in  1870,  declared  the  present  legal- 
tender  act  unauthorized  by  the  Constitution.  This  de- 
cision was  afterward  reversed  by  the  questionable,  not  to 
say  scandalous,  method  of  adding  two  new  judges  to  the 
Court,  so  as  to  make  a majority  of  one  in  favor  of  the 
law.  Yet  even  then  Mr.  Justice  Bradley  took  occasion 
to  say  of  this  doubtful  authority,  that  it  is  “ a power  not 
to  be  resorted  to  except  upon  extraordinary  and  pressing 
occasions,  such  as  war  or  other  public  exigencies  of  great 
gravity  and  importance  ; and  should  he  no  longer  exerted 
than  all  the  circumsta7ices  of  the  case  demand^ 


IV. 

THE  FRENCH  ASSIGNATS. 

General  Butler  says  of  the  Continental  currency, 
that  it  wanted  every  element  of  value,  since  it  was  issued 
by  a conglomeration  of  states  struggling  for  existence, 
and  many  of  their  best  people  believed  that  the  struggle 
would  end  in  failure  and  anarchy.^  Let  us,  then,  take 
another  example. 

* Congressional  Glohe^  January  12,  1869,  p.  308. 


THE  FRENCH  ASSIGNATS. 


19 


> 


At  the  close  of  the  year  1789  the  French  nation  found 
itself  seriously  embarrassed  ; there  was  a heavy  public 
debt  and  a deficit  in  the  revenue.  The  situation  was 
worse  than  the  condition  of  the  United  States  in  1865  ; 
still  it  was  not  desperate.  What  was  needed  was  only 
patience,  integrity,  and  economy,  public  and  private. 
The  minister  of  finance  was  Necker,  a banker  of  honor- 
able reputation,  a patriotic  citizen,  and  a faithful  public 
ofiicer.  He  gave  the  French  Assembly  the  same  advice 
which  Secretary  McCulloch  gave  the  American  Congress 
in  1865  ; the  same  advice  which  honest  men  at  all  times 
have  given  to  individuals,  corporations,  and  nations  : 

Live  within  your  income,  and  keep  your  agreements.” 
The  National  Assembly  and  a few  newspapers  began 
then,  as  the  American  Congress  and  some  American  news- 
papers began  in  1865,  to  mutter  about  securing  resources 
without  paying  interest.”  On  the  19th  of  April,  1790, 
the  finance  committee  of  the  Assembly  reported  that 
the  people  demand  a new  circulating  medium,”  and 
before  the  end  of  the  month  the  first  issue  of  assignats^ 
amounting  to  400,000,000  francs,  was  decreed. 

The  assignats  were  receivable  for  the  vast  real  estate 
of  the  French  church,  which  had  been  confiscated  by  the 
nation,  and  was  worth  about  4,000,000,000  francs.  The 
notes  also  bore  interest  at  three  per  cent.  No  currency, 
irredeemable  in  specie,  was  ever  more  carefully  guarded. 
It  was  argued  that  the  interest  would  cause  the  notes  to 
be  hoarded,  and  that  when  the  currency  became  redun- 
dant, it  would  be  invested  in  the  public  lands. 

The  current  now  began  to  move  with  a force  which 
few  public  men  could  withstand.  In  five  months,  there 
was  a cry  for  more  money,  and  even  Mirabeau,  who  knew 
better,  favored  a new  issue  of  800,000,000  francs  in  assi- 
gnats, When  this  measure  was  carried,  Necker  resigned 


20 


PAPER  MONEY. 


and  retired  to  Switzerland,  as  McCallocli  afterward  re- 
tired to  England. 

It  is  the  first  step  that  costs.  During  the  next  six  years 
45,000,000,000  francs  in  assignats  were  issued  upon  the  se- 
curity valued  originally  at  4,000,000,000  francs.  The  price 
of  the  paper  declined  steadily  as  the  volume  increased.  In 
February,  1796,  a franc  in  gold  was  worth  288  francs  in 
paper ; sugar  was  500  francs  a pound,  soap  230  francs, 
candles  140  francs.  Wages  alone  had  not  risen  ; the 
manufactories  were  closed  ; the  people  were  starving  ; a 
few  speculators  were  rolling  in  luxury.  When  the  paper 
began  to  depreciate,  Prudhomme  said  in  his  newspaper  : 

Coin  will  keep  rising  until  the  people  have  hung  a bro- 
ker.” Another  notion  was  that  English  emissaries  were 
depreciating  the  paper  money,  as  it  is  now  pretended  in 
this  country  that  Ernest  Seyd  had  a hand  in  the  demon- 
etization of  silver.  Marat  asserted  that  death  was  the 
proper  penalty  for  unpatriotic  Frenchmen  who  hoarded 
gold.  A superstition  gained  ground  among  the  people, 
that  if  only  enough  paper  money  was  issued,  the  poor 
would  somehow  become  rich.  It  was  declared  that  the 
experience  of  other  nations  was  no  guide  for  the  enlight- 
ened inhabitants  of  France  in  the  eighteenth  century.  A 
committee  of  the  Assembly  reported  that  they  had  found 
the  amount  of  the  circulating  medium  before  the  Revolu- 
tion actually  greater  than  the  volume  of  assignats^  which 
therefore  could  not  be  redundant.  Laws  were  passed 
punishing  people  for  buying  gold,  forbidding  foreign  in- 
vestments, confiscating  the  property  of  Frenchmen  who 
went  abroad,  regulating  the  prices  of  goods.  All  to  no 
purpose.  The  assignats  went  steadily  down,  and  when 
the  attempt  to  maintain  them  by  law  was  finally  aban- 
doned, they  were  found  to  be  almost  exclusively  in  the 
hands  of  the  working  people  and  men  of  small  means.  In 


THE  FRENCH  ASSIGNATS. 


21 


July,  1796,  it  was  decreed  that  bargains  should  be  made 
in  whatever  currency  the  people  chose,  and  straightway 
the  whole  vast  issue  became  visibly  and  irremediably 
worthless.  The  contraction  ” was  the  work  of  a single 
day.  Coin,  which  had  quite  disappeared,  came  to  light 
as  if  by  magic,  and  in  another  year  the  industries  of 
France  had  revived  and  prosperity  was  slowly  returning. 

It  is  not  probable  that  this  famous  chapter  of  financial 
history  is  about  to  be  rewritten  in  the  United  States  ; but 
the  same  sophistry,  which  misled  the  French  people,  is 
heard  in  Congress  and  repeated  by  a portion  of  the  press. ^ 
The  French  demagogues  inflamed  the  people  against  the 
shopkeepers,  who  were  trying  to  sell  their  goods  at  a price 
corresponding  to  the  current  value  of  the  money  in  which 
they  dealt.  On  the  28th  of  February,  1793,  a mob  of 
men  and  v/omen  plundered  two  hundred  shops  and  stores 
in  Paris.  When  the  merchants  made  complaint  at  the 
City  Hall,  Roux  replied  that  they  were  only  giving 
back  to  the  people  what  they  had  before  robbed  them 
of.”  In  the  same  way,  our  American  demagogues  en- 
deavor to  inflame  the  popular  passion  against  the  bankers, 
but  hitherto  with  little  apparent  success. 

During  these  seven  years  the  French  nation  was  pow- 
erful and  victorious — powerful  enough  to  depose  a French 
king  in  1792,  and  execute  him  in  1793  ; victorious  over 
the  Prussians  in  1794,  and  the  Austrians  in  1795  and 
1796.  But  the  French  finances,  through  the  weakness  of 
the  Assembly,  were  thrown  into  a confusion  which  war, 
famine,  and  pestilence  together  could  hardly  have  pro- 
duced. Bonaparte,  like  most  practical  men,  had  a strong 

^ A monograph  on  the  “ Paper-Money  Inflation  in  France,”  by  Presi- 
dent White,  of  Cornell  University,  contains  an  instructive  sketch  of  the 
debates  in  the  Assembly,  as  reported  in  the  Moniteur.  The  pamphlet 
was  published  in  1876  by  D.  Appleton  & Co. 


22 


PAPER  MONEY. 


conviction  of  tlie  value  of  cash  payments.  Under  his  ad- 
ministration, from  1800  to  1815,  French  credit  and  indus- 
try were  so  firmly  reestablished  that  they  bore,  without 
any  severe  shock,  the  heavy  military  expenses  and  indem- 
nities exacted  when  France  became  the  scene  of  war,  and 
the  empire  went  down  at  Waterloo. 


V. 

OLD  TENOR  BILLS. 

In  the  majority  report  of  the  commission  appointed 
by  Congress  in  1876,  to  inquire  into  the  change  in  the 
relative  value  of  gold  and  silver,  and  some  cognate  mat- 
ters, Senator  Jones  goes  out  of  his  way  to  explain  the 
theory  of  the  fiat  money  school  ” of  thinkers,  as  amend- 
ed after  contemplating  the  Continental  currency  and  the 
French  assignats.  They  do  not  want,  it  appears,  paper 
money  based  upon  gold,  silver,  or  any  other  fluctuating 
commodity  ; nor  upon  lands,  like  the  assignats ; nor  of 
any  use  to  the  owner  except  when  parted  with  ; but  an 
absolute  money,  with  a value  conferred  by  the  sovereign 
authority,  and  resting  impregnably  upon  functions  es- 
sential to  civilization  and  progress.”  ^ Our  ancestors  had 
a currency  which  this  description  precisely  fits. 

When  the  Stuarts  were  driven  out  of  England  in 
1688,  the  Massachusetts  settlers  straightway  applied  to 
King  William  of  Orange  for  a renewal  of  their  charter, 
which  had  been  taken  away  by  King  James  II.  The 
charter,  when  it  came,  incorporated  the  colonies  of  Maine 


^ Report  of  the  Silver  Commission,”  IS^Y,  vol.  i.,  p.  45. 


OLD  TENOR  BILLS. 


23 


and  Massacliusetts  into  a single  province,  and  the  first 
governor  under  the  new  charter,  as  has  often  been  noted, 
was  Sir  William  Phips,  a native  of  Maine.  From  that 
time  until  1820  the  Maine  counties  were  subdivisions  of 
Massachusetts,  and  Maine  representatives  sat  in  the  Gen- 
eral Court  at  Boston. 

The  revolution  in  England  gave  a more  satisfactory 
government  to  the  colonies,  but  it  cost  them  a long  war- 
fare. Catholic  France  espoused  the  cause  of  the  Stuarts 
against  their  Protestant  successor,  and  the  French  and 
English  colonies  on  this  continent  were  involved  in  the 
controversy.  In  1689  the  French  and  Indians  captured 
the  fort  at  Pemaquid  and  laid  waste  the  Sheepscot  farms. 
In  1690  they  destroyed  the  settlement  at  Falmouth,  and 
the  whole  country  east  of  Wells  was  abandoned  by  the  Eng- 
lish. In  revenge.  Sir  William  Phips,  with  seven  hundred 
men,  sailed  down  to  Acadia  and  ravaged  Port  Royal  and 
the  neighboring  settlements.  Then  he  fitted  out  a fleet 
of  thirty-two  ships,  with  two  thousand  men,  to  attack 
Quebec,  while  a little  army  of  Massachusetts  and  New 
York  men,  under  Fitz-John  Winthrop,  marched  overland 
against  Montreal.  These  costly  expeditions  failed,  and 
until  the  peace  of  Ryswick,  in  1697,  Massachusetts  did 
but  little  more  than  to  guard  her  borders  against  the 
prowling  enemy.  Another  French  and  Indian  war  began 
in  1701  and  lasted  until  1713,  and  a third  in  1742,  lasting 
until  1748.  For  half  a century  the  men  of  Massachu- 
setts and  Maine  stood  upon  the  defensive.  In  1745  a bril- 
liant offensive  operation  was  conducted  by  a Maine  officer 
— the  capture  of  Louisburg  by  Colonel  Peperell,  of  Kit- 
tery.  An  expedition  was  again  planned  against  Quebec, 
with  Louisburg  as  a base  of  operations,  but  the  English 
fleet  which  had  been  promised  did  not  appear,  and  the 
colonial  preparations  went  for  nothing.  Louisburg  itself 


24 


PAPER  MONEY. 


was  surrendered  in  1748,  by  the  treaty  of  Aix-la-Cha- 
pelle,  to  tbe  great  chagrin  of  the  brave  men  who,  with- 
out aid  from  the  mother  country,  had  taken  that  strong 
post. 

Of  course  this  warfare  was  expensive,  and  while  it 
lasted,  the  taxable  resources  of  the  province  were  greatly 
diminished.  It  was  impossible  to  raise,  by  taxation, 
means  to  equip  expeditions  against  Port  Royal,  Louis- 
burg,  and  Quebec,  and  our  ancestors  issued  paper  money. 
This  was  an  error  of  judgment,  the  more  pardonable  in 
their  case,  because  they  had  been  accustomed  to  a great 
variety  of  substitutes  for  coin.  The  coin  which  the  first 
settlers  brought  over  in  1620,  and  later,  soon  went  back 
to  England  for  supplies.  The  first  trading  with  the  In- 
dians was  by  barter,  to  which,  to  some  extent,  the  use  of 
wampum  succeeded.  Beaver-skins  were  used  as  money, 
and  Indian  corn  was  made  a legal  tender,  at  the  market 
price,  except  in  cases  where  there  had  been  an  express 
stipulation  to  pay  in  coin  or  beaver.  Corn  and  other 
produce  were  received  at  prescribed  rates,  in  payment  of 
taxes.  At  one  time,  leaden  bullets  were  made  a legal 
tender  as  the  equivalent  of  farthings." 

All  these  substitutes  for  coin,  it  will  be  seen,  had  an 
intrinsic  value,  except  wampum,  and  that,  so  long  as  the 
Indians  were  willing  to  take  it  for  furs,  was  good  repre- 
sentative money.  These  distinctions,  however,  did  not 
occur  to  the  colonists  ; they  had  seen  shells,  lead,  skins, 
and  grain  performing  the  office  of  money  ; and  they 
thought,  as  some  people  who  ought  to  be  wiser  now 
think,  that  the  legal-tender  quality  was  w^hat  constituted 
money,  and  that  this  quality  might  be  impressed  upon  a 
material  wholly  without  value,  like  paper. 


* Palfrey’s  “ History  of  New  England,”  vol.  i.,  p.  295. 


OLD  TENOR  BILLS. 


25 


So  they  issued  bills,  first  of  all,  in  1690,  to  meet  the 
expense  of  the  unfortunate  expeditions  against  Montreal 
and  Quebec.  These  bills  were  the  ideal  fiat  money — 
without  interest,  without  date  of  maturity,  ^^full  legal 
tender  ” for  all  taxes  and  imposts.  The  form  of  the  first 
issue  was  this  : 

“ This  Indented  Bill  of  £1,  due  from  the  Massachusetts  Colony 
to  the  Possessor,  shall  he  in  Value  equal  to  Money;  and  shall  be 
accepted  accordingly  by  the  Treasurer  and  the  Receivers  subor- 
dinate to  him  in  all  Public  Payments  and  for  any  Stock  at  any 
time  in  the  Treasury.^ 

“ Boston  in  NTew  England,  February  8d,  1690. 

‘‘  By  Order  of  the  General  Court.” 

If  these  bills  had  been  strictly  limited  to  the  amount 
necessary  to  pay  taxes  actually  levied  and  collected,  they 
would  no  doubt  have  remained  at  par  like  our  small  issue 
of  demand  notes  receivable  for  customs.  But  they  were 
intended  to  meet  the  wants  of  trade  ; ” and  though  the 
General  Court  was  pleased  with  this  easy  way  of  raising 
money  without  taxation,  and  the  colonists  generally  were 
glad  to  be  relieved  of  their  taxes,  it  immediately  ap- 
peared that  the  bills  were  not  in  value  equal  to  money.” 
The  makers  imagined  that  by  some  turn  in  the  phrase- 
ology  they  might  overcome  this  difficulty,  and  so  after  a 
time  there  came  to  be  four  kinds  of  bills,  differing  in 
tenor  and  date,  and  distinguished  as  old  tenor,  middle 
tenor,  new  tenor  first,  and  new  tenor  second,  but  all  de- 
preciated in  different  degrees.  Silver  completely  disap- 
peared from  circulation.  The  following  table  gives  the 

^ Prof.  Sumner  understands  by  “ Stock,”  corn  or  other  produce  taken 
by  the  treasurer  in  payment  of  taxes,  according  to  the  custom  then  pre- 
vailing. 


26 


PAPER  MONEY. 


price  of  exchange  on  London  in  the  old  tenor  currency  at  - 
different  dates  : 


Tears. 

Exchange. 

Tears. 

Exchange. 

1702 

133 

1728 

340 

1705 

135 

1730 

380 

1713 

150 

1737 

600 

1716 

m 

1741 

550 

1717 

225 

1749 

1,100 

1722 

270 

The  great  depreciation  between  1741  and  1749  was 
occasioned  by  the  large  emission  of  already  inflated  paper, 
on  account  of  the  Louisburg  expedition  in  1745.  In  1749 
it  took  £1,100  in  the  colonial  currency  to  buy  £100  in 
silver.  The  amount  of  Massachusetts  paper  then  in  cir- 
culation was  £2,466,712,  worth,  at  this  rate,  about  £223,- 
000. 

In  1748,  the  British  Government  appropriated  £183,- 
649  to  repay  the  expenses  of  the  Louisburg  expedition, 
and  the  General  Court,  under  the  lead  of  Governor  Hutch- 
inson, then  Speaker  of  the  House,  appropriated  that  sum, 
except  £16,000  which  belonged  to  New  Hampshire,  to 
the  purchase  of  the  paper  currency  at  its  market  value. 
A tax  was  levied  to  make  up  the  deflciency.  The  act 
was  passed  in  December,  1748,  and  was  to  take  effect 
April  1,  1750.  The  money  was  landed  at  Long  Wharf, 
in  Boston,  in  the  fall  of  1749,  in  215  chests  containing 
over  twenty  tons  of  silver  and  ten  tons  of  copper  coin. 
At  the  appointed  time,  the  bills  were  called  in  and  the 
silver  was  issued,  contracting  the  currency  ninety-one  per 
cent,  in  a single  day,  with  only  fifteen  months’  notice. 
This  was  heroic  practice,  but  the  colonists  had  discovered 
the  source  of  their  trouble,  and  were  determined  to  re- 
store order  to  their  finances  and  to  secure  a currency  with 
a stable  value,  from  which  they  did  not  again  depart  un- 


OLD  TENOR  BILLS.  27 

til  tlie  Continental  currency  was  forced  upon  them  by 
the  exigencies  of  the  Revolution  of  1776. 

There  were  no  daily  papers  in  those  days,  but  the 
diary  of  Parson  Smith,  already  quoted,  give?^  some  in- 
structive hints  concerning  the  distress  :occJ^ioned  by  the 
depreciation  of  the  currency.  ^ In  current 

money,  was  at  first  £100,  and -adVanced  £l60  in  1733, 
£200  in  1735,  £230  in  1736,,  £265  1 743;. £15t)^new  tenor 

in  1747  in  lieu  of  £400  ojd  Whor,  £600  in^7,74B,;  £6^^ 
1749,  and  £700  in  1750,  though' o parishioners 

wanted  to  make  it  £800.  The,  dargef  sum  would  have 
been  worth  only  about  £75  in  silver,  and  his  salary  was 
afterward  reduced  to  that  figure.  Beginning  in  1737, 
when  the  rate  of  exchange  was  already  5 to  1,  the  diary 
contains  the  following  passages  bearing  upon  this  sub- 
ject : 

1737. 

January  3, — There  is  no  wood,  little  corn ; and  complaints 
everywhere. 

March  SO,— All  the  talk  in  Boston  is  about  the  mob  that  pulled 
down  the  market. 

June  — Corn  is  10^.  a bushel  in  Boston ; hardly  any  to  be 
got. 

Movemler  18. — There  has  been  a distressing  time  in  Boston  for 
want  of  bread ; but  the  night  before  Thanksgiving,  1,500  barrels 
of  flour  was  brought  in,  which  reduced  the  price  from  65^.  to  55s. 
a hundred. 

1741. 

January  10. — There  has  been  for  some  time  a melancholy 
scarcity  of  corn. 

May  4. — Pretty  many  families  on  the  Penobscot  live  wholly 
on  the  clam  banks. 

May  15. — Mr.  Jones  sells  his  corn  at  15s.  a bushel.  It  is  14s. 
in  Boston.  People  groan  terribly  at  the  price. 


28 


PAPER  MONEY. 


1742. 

November  2, — Beef  is  now  sold  in  this  town  at  per  pound, 
and  other  provisions  extravagantly  dear. 

June  IJf.  —Mr,  Waldo  came  to  town  with  an  execution  against 
Colonel  Weglhro(»k, 'fov*£10,500  and  charges. 

. ,/  " ' im 

January  9. — The  difficulties  of  living  daily  increase ; unright- 
eousness and  oppression  are  hrbaking  out  like  a deluge.  There  is 
no  standard  ^w  hut^evbjy  man  is  getting  what  he  can. 

January  10, — The  prices. "of  the  necessaries  of  life  do  daily 
monstrously  increase. 

May  20, — Indian  corn  is  now  30^.  a bushel ; flour  £10  a hun- 
dred. 

1749. 

February  Jf. — Major  Freeman  came  home  from  the  General 
Court,  and  brought  with  him  the  new  act  for  drawing  in  all  the 
paper  currencies  by  the  exchange  of  silver. 

1750. 

April  2. — This  day  the  Province  treasury  is  open,  and  silver 
is  given  out  for  our  province  bills,  which  now  cease  to  pass.  This 
is  the  most  remarkable  epoch  of  this  Province.  Its  affairs  are 
now  brought  to  a crisis. 

May  25, — Rode  to  Boston.  It  is  a time  of  great  perplexity 
and  distress  here,  on  account  of  the  sinking  of  the  paper  currency. 
Thei^e  is  a terrible  clamor  and  things  are  opening  for  the  extrem- 
est  confusion  and  difficulties.  The  merchants,  shopkeepers,  and 
others  in  Boston,  having  for  some  years  past  got  money  easily 
and  plentifully  by  the  abundance  of  that  fraudulent  and  iniqui- 
tous currency,  and  abandoned  themselves  to  the  utmost  extrava- 
gance and  luxury  in  all  their  way  of  living,  are  now  in  a sad  toss 
and  make  outrageous  complaints  at  the  stop  put  to  it  by  the  late 
act. 


Here  is  a picture  in  miniature  of  every  e-xperiment  in 
the  use  of  irredeemable  paper  since  that  fraudulent  and 


OLD  TENOR  BILLS. 


29 


iniquitous  currency  ” was  invented.  It  was  an  era  of 
speculation.  The  farms  were  neglected  for  the  tempting 
but  delusive  profits  of  trade.  Actual  scarcity  came  to 
exaggerate  the  inevitable  advance  of  prices.  The  market- 
men  were  believed  to  be  taking  advantage  of  the  necessi- 
ties of  the  people,  and  the  market  house  in  Boston  was 
torn  down  by  a mob.  Colonel  Westbrook  was  ruined  by 
land  speculation,  and  was  completely  broken  down  by  his 
misfortunes  ; he  died  insolvent  in  February,  1744.  The 
merchants  and  shopkeepers  realized  fabulous  profits,  in 
paper,  by  the  steady  rise  of  prices,  and  fell  into  extrava- 
gant habits  of  living.  When  the  end  of  it  all  came,  as 
come  it  must,  since  no  such  system  of  fictitious  and  ir- 
regular valuation  can  be  permanent,  the  profits  shrank  and 
shriveled  like  the  devil’s  paper  in  which  they  were  reck- 
oned. No  circumstance  of  our  recent  experience  was  want- 
ing. It  was  even  believed,  by  some  foolish  people,  that  the 
contraction  was  planned  by  the  rich  in  order  to  increase 
the  value  of  their  hoarded  silver,  though  the  silver  would 
buy  no  more  goods  after  resumption  than  before.  Willis  ^ 
reports  that  riots  took  place  in  Boston  and  in  other  towns 
on  this  account.  These  fancies,  he  adds,  “ all  yielded  to  the 
steady  and  salutary  progress  of  a sound  currency,  which, 
like  the  light  and  dew  of  heaven,  diffused  its  blessings 
alike  on  rich  and  poor ; and  in  a few  months  the  people 
came  to  entertain  an  unconquerable  aversion  to  paper.” 


1 “ History  of  Portland,”  p.  447. 


30 


PAPER  MONEY. 


VI. 


THE  BAOTC  OF  VEmCE. 

The  first  and  second  propositions  of  the  Greenback 
theory  are  not  sustained  by  the  examples  given  ; but  it  is 
alleged,  in  reply,  that  the  circumstances  were  unfavorable 
to  these  experiments,  and  that  the  receipts  of  the  Bank 
of  Venice,  for  a perpetual  loan  to  the  government  in  1157, 
answered  all  the  requirements  of  the  theory,  being  issued 
by  the  established  government  of  a wealthy  state,  embar- 
rassed by  no  promise  of  payment  in  gold  or  any  other 
merchandise,  and  encumbered  by  no  reserve  of  coin. 
These  receipts,  it  is  said,  circulated  as  absolute  money,  at 
par  with  gold  and  silver  or  at  a premium,  but  never  below 
par,  for  six  hundred  years,  until  Bonaparte  destroyed  the 
Venetian  republic  in  1797.^ 

To  dispose  of  this  representation,  it  is  only  necessary 
to  turn  to  the  encyclopasdias.^  The  Bank  of  Venice  was 
the  first  of  the  great  public  banks,  like  the  Bank  of  Eng- 
land, the  Bank  of  France,  and  the  Bank  of  the  United 
States.  At  the  beginning  it  was  not  a bank  at  all.  The 
state  was  in  financial  difficulties,  and  levied  a forced  loan 
upon  the  people,  promising  them  interest  at  the  rate  of 
four  per  cent.  The  stock  was  made  transferable,  and  a 
body  of  commissioners,  called  the  Chamber  of  Loans,  was 
appointed  to  manage  the  transfer  of  securities  and  the 
payment  of  interest.  This  was  the  first  example  of  a per- 
manent national  debt,  funded  in  interest-bearing  securi- 
ties. These  securities,  though  transferable,  were  not  cur- 
rency. They  were  the  exact  counterpart  of  our  interest- 

^ Speech  of  E.  M.  Boynton,  of  New  York,  at  Portland,  Maine,  August 

28,  1878. 

2 See^  for  example,  ZelPs  “Encyclopedia,’^  article  “Banking.” 


TEE  BANK  OF  VENICE. 


31 


bearing  bonds.  The  Greenback  orators  do  not  know  it^ 
but  we  have  the  Bank  of  Venice,  under  its  original  plan, 
in  full  operation. 

The  interest  upon  the  Venetian  debt  was  paid  regu- 
larly in  coin,  just  as  the  interest  has  been  paid  upon  the 
bonds  of  the  United  States.  It  followed  that  the  bonds 
of  Venice  were  in  high  credit,  as  are  the  bonds  of  the 
United  States.  This  circumstance  suggested  an  extension 
of  the  usefulness  of  the  bank — if  it  can  be  called  a bank 
at  that  time. 

Several  centuries  after  the  establishment  of  the  Cham- 
ber of  Loans,  it  happened  that  many  foreign  coins  were 
in  circulation  in  Venice.  Venice  was  a centre  of  com- 
merce, and  all  the  clipped  and  worn  coinage  of  the  world 
came  pouring  in  there,  to  the  great  inconvenience  of  mer- 
chants. The  state,  in  order  to  meet  this  difficulty,  au- 
thorized the  Chamber  of  Loans  to  receive  on  deposit,  by 
weight,  coins  of  all  sorts,  and  to  issue  notes  promising  to 
pay  an  amount  of  bullion  corresponding  to  the  real  value 
of  the  deposits.  These  notes  promised  to  pay  to  the  bear- 
er, on  demand,  a definite  quantity  of  bullion,  of  the  proper 
fineness.  The  notes  saved  the  wear  of  coin  in  actual  cir- 
culation, and,  as  they  promised  to  pay  a specific  weight 
of  the  precious  metals,  they  insured  a uniform  standard 
in  mercantile  transactions.  They  were,  of  course,  at  a 
premium  in  the  debased  currency  which  was  used  for  or- 
dinary transactions,  and  they  remained  in  good  credit  until 
the  fall  of  the  republic  in  1797.  This  is  precisely  the 
kind  of  currency  which  we  are  going  to  have  in  this  coun- 
try after  the  1st  of  January  next. 

Some  confusion  has  arisen  concerning  the  management 
of  the  Bank  of  Venice,  on  account  of  the  different  func- 
tions which  it  performed  at  different  times.  As  first  or- 
ganized, it  was  simply  a government  office  for  the  collec- 


32 


PAPEK  MONEY. 


tion  of  a forced  loan  and  the  payment  of  interest  there- 
on. From  this  circumstance  has  risen  the  impression  that 
the  deposits  could  not  be  withdrawn.  Long  afterward, 
the  bank  issued  certificates  of  deposit,  secured  by  actual 
specie  on  hand,  and  payable  on  demand,  and  these  certifi- 
cates passed  current  at  a uniform  value. 


VII. 

JOHN  law’s  legal-tender  notes. 

It  was  not  the  Bank  of  Venice  but  the  Bank  of  France 
which  first  issued  legal-tender  paper.  The  Bank  of  Ven- 
ice, as  has  been  shown,  did  not  become  a bank,  in  the 
modern  sense,  until  several  centuries  after  the  creation  of 
the  Chamber  of  Loans.  The  Bank  of  Genoa  went  into 
operation  in  1407.  The  Bank  of  Amsterdam  was  estab- 
lished in  1609  ; the  Bank  of  Hamburg  in  1619  ; and  the 
Bank  of  Stockholm  in  1668.  The  Bank  of  Stockholm 
was  the  first  to  issue  bank-notes,  though  the  certificates  of 
deposit  issued  by  its  predecessors  answered  a similar  pur- 
pose. The  difference  was,  that  the  notes  represented  the 
credit  of  the  bank,  while  the  certificates  represented  the 
property  of  the  depositors.  The  Bank  of  England  was 
founded  in  1694. 

The  Bank  of  Amsterdam,  like  the  Bank  of  Venice,  was 
established  to  receive  clipped  and  worn  coin,  for  the  value 
of  which,  by  weight,  the  certificates  were  issued.  The 
bank  professed  to  keep  on  hand  every  ounce  of  the  pre- 
cious metals  so  deposited,  but  when  the  French  occupied 
Amsterdam  in  1796,  it  was  found  that  five  millions  of 
dollars  had  been  secretly  lent  to  Holland  and  Friesland, 
and  this  discovery  ruined  the  bank. 


JOHN  LAW’S  LEGAL-TENDER  NOTES. 


33 


To  Amsterdam,  near  the  close  of  the  seventeenth  cen- 
tury, came  an  adventurous  young  Scotchman,  who  spent 
some  time  in  closely  observing  the  operations  of  the 
Dutch  bank.  J ohn  Law  of  Lauriston  was  the  sOn  of  an 
Edinburgh  goldsmith,  who,  like  most  goldsmiths  in  that 
day,  was  also  a banker,  dealing  not  only  in  gold  and  silver 
ware  but  in  coin,  and  receiving  the  precious  metals  on 
deposit.  John  Law,  born  in  1671,  was  an  excellent  math- 
ematician and  accountant,  and  while  still  a youth  was  em- 
ployed by  the  Scottish  government  to  bring  the  accounts 
of  the  revenue  into  order.  After  his  father’s  death,  he 
lived  for  a time  in  London,  and  fled  to  Holland  in  conse- 
quence of  a duel  in  which  he  killed  his  adversary.  In 
1701  he  returned  to  his  native  country  and  published  his 
Proposals  and  Reasons  for  establishing  a Council  of 
Trade  in  Scotland.”  The  result  of  his  observations  of 
the  sources  of  public  revenue  and  of  the  new  plan  of  is- 
suing notes  on  credit,  was  a conviction  that  wealth  con- 
sists of  ready  cash,  and  that  paper  money  is  as  good  as 
any.  He  proposed,  therefore,  to  establish  a land  bank,” 
and  issue  notes  representing  the  value  of  all  the  lands  in 
the  kingdom.  In  1705  he  published  a treatise  on  “ Money 
and  Trade,”  setting  forth  the  same  opinions  with  great 
ingenuity  ; but  the  cautious  Scotch  Parliament  refused  to 
entertain  his  scheme,  and  he  drifted  away  again  to  the 
Continent,  where  he  led  a roving  life,  and  is  said  to  have 
acquired  a fortune  in  gambling. 

Meanwhile,  in  1711,  the  South  Sea  Company  was 
formed  in  London,  for  the  purpose  of  funding  the  float- 
ing debt  of  the  government,  then  amounting  to  about 
£10,000,000.  The  government  agreed  to  pay  six  per 
cent,  for  the  money,  and  furthermore  granted  to  the  com- 
pany a monopoly  of  the  South  American  trade,  concern- 
ing which  fabulous  stories  were  told.  No  attempt  was 


34 


PAPER  MONEY. 


I 


made  to  develop  this  trade.  The  South  Sea  stock  was 
what  is  now  called  a fancy  stock,  to  the  end  of  the  chap- 
ter. The  company  were  so-successful  in  placing  the  <£10,- 
000,000  that  in  1720  they  undertook  to  assume  the  en- 
tire national  debt  of  £31,000,000  at  five  per  cent.,  and  the 
consent  of  Parliament  was  granted  in  April.  A period 
of  wild  speculation  followed.  In  August  the  shares  were 
quoted  at  ten  times  their  nominal  value,  and  then  came 
reaction,  investigation,  the  discovery  of  an  over-issue  of 
£1,260,000  of  stock,  which  had  been  corruptly  used  to 
secure  the  passage  of  the  bill  through  Parliament,  and 
finally  an  adjustment  and  winding-up  of  the  affairs  of 
the  company. 

While  all  this  was  going  on  in  London,  John  Law 
was  managing  a similar  scheme  in  Paris.  He  had  opened 
a private  bank  at  the  French  capital  in  1716.  The  Bank 
of  Stockholm,  the  Bank  of  Hamburg,  and  the  Bank  of 
England  were  then  the  only  banks  issuing  notes.  Law 
established  a bank  of  issue,  and  was  so  prosperous  that  in 
1718  it  was  declared  a royal  bank,  by  a special  edict  from 
the  regent,  the  Duke  of  Orleans. 

The  public  debt  of  France  was  then  about  800,000,- 
000  francs.  As  soon  as  the  bank  became  a public  insti- 
tution, the  regent  ordered  notes  to  be  printed  to  the 
amount  of  1,000,000,000  francs.  The  project  was  formed  of 
paying  off  the  debt  in  bank-bills.  So  long  as  the  volume 
of  currency  was  increasing,  business  was  greatly  stimula- 
ted, prices  advanced  fourfold,  wages  increased,  the  looms 
were  busy,  a delusive  prosperity  appeared,  but  gold  and 
silver  disappeared  from  circulation.  In  the  course  of 
sixteen  months  bills  amounting  to  more  than  2,000,000,- 
000  francs  were  issued.  All  taxes  were  collected  in  paper, 
which  was  made  a legal  tender  for  payments  of  every 
kind,  and  bills  as  low  as  ten  francs  were  printed. 


JOHN  LAW’S  LEGAL-TENDER  NOTES. 


35 


# 


In  imitation  of  the  South  Sea  bubble,  Law  had  al- 
ready devised  the  Mississippi  scheme.  His  Company  of 
the  West  was  formed  in  1717,  and  had  secured  the  exclu- 
sive privileges  of  farming  the  taxes,  coining  money,  and 
trading  to  the  Mississippi.  In  1719  Law  was  made  comp- 
troller-general of  the  finances,  and  secured  for  his  com- 
pany the  monopoly  of  trading  to  the  South  Seas,  the  East 
Indies,  and  China.  The  name  was  changed  to  the  Com- 
pany of  the  Indies,  and  50,000  new  shares  were  issued, 
for  which  there  were  at  least  300,000  applicants.  Law 
was  noAV  at  the  height  of  his  brief  glory.  His  house  was 
daily  besieged  by  visitors  of  all  ranks  and  both  sexes, 
who  waited  patiently  for  hours  for  an  interview  with  the 
magician.  The  city  went  mad  with  greed.  The  exchange 
opened  in  the  morning  with  beat  of  drum  and  peal  of 
bell,  and  closed  at  night  upon  reluctant  throngs  of  stock- 
gamblers.  The  shares  rose  to  incredible  prices,  but  the 
reserve  of  coin  in  the  bank  steadily  slipped  away,  and 
none  of  it  ever  came  back. 

The  crash  came  in  1720.  In  February  the  Company 
of  the  Indies  and  the  bank  were  amalgamated,  and  Law 
announced  that  the  bank  issues  were  secured  upon  shares, 
the  value  of  which  was  certain  ; but  there  was  a lamen- 
table scarcity  of  specie.  The  bank-notes  were  made  cur- 
rent through  the  kingdom,  having  previously  circulated 
only  in  Paris  and  the  cities  where  there  were  branch  banks. 
An  edict  forbade  the  removal  of  specie  from  cities  where 
there  were  mints.  Permission  was  given  to  the  company 
to  search  private  houses  for  specie  which  had  not  been 
taken  to  the  mint  for  recoinage.  No  person  was  allowed 
to  keep  more  than  500  francs  in  specie  or  bullion,  or  to 
make  a payment  of  more  than  100  francs  in  the  precious 
metals.  The  penalty  for  these  offenses  was  confiscation 
of  the  treasure,  one  half  to  go  to  the  informer,  with  fines 


I 


36 


PAPER  MONEY. 


besides.  Citizens  were  forbidden  to  leave  France  with- 
out a passport,  on  pain  of  death,  and  a passport  could 
only  be  obtained  by  showing  that  no  considerable  sum  of 
gold  or  silver  was  to  be  taken  away.  It  was  the  paper 
currency  which  was  driving  out  the  coin,  but  between 
February  1st  and  the  end  of  May  1,500,000,000  more  of 
paper  francs  were  printed. 

On  May  21st,  the  regent,  in  spite  of  Law’s  protesta- 
tions, published  an  edict  reducing  the  value  of  the  notes 
and  providing  for  a new  issue  into  which  the  outstanding 
bills  should  be  converted.  The  coin  had  previously  been 
treated  in  the  same  way  ; the  value  of  the  livre  had  been 
changed  fifty  times  in  four  years,  and  the  metallic  cur- 
rency had  as  often  been  called  in  for  recoinage.  The 
bills  instantly  stopped  circulating  ; business  ceased ; the 
bank  stopped  payment  in  July  ; the  Mississippi  shares 
ran  down  to  24  ; and  Law  fled  from  the  country  which 
he  had  ruined.  He  died  at  Venice  in  1729,  firmly  per- 
suaded that  his  system  was  sound,  and  that  its  complete 
success  had  been  prevented  by  the  foolish  interference  of 
the  regent.  An  edition  of  his  works  was  published  in 
Paris  in  1790,  and  his  idea  of  a land  bank  was  then  car- 
ried into  effect  by  the  French  Assembly  which  created 
the  assignats.  It  was  then  demonstrated  by  a second  ex- 
periment, upon  a gigantic  scale,  that  wealth  is  not  in- 
creased by  increasing  the  volume  of  money  ; and  that 
paper  money  will  not  maintain  itself  at  par  with  coin, 
unless  it  is  convertible  into  coin  at  the  will  of  the  holder. 

Law’s  theory  is  briefly  stated  by  the  French  historian, 
Henri  Martin,  in  these  words  : 

Law  thought  the  state  should  generalize  systematically  what, 
is  done  instinctively  among  private  individuals,  and  should  do 
what  private  individuals  cannot  do ; that  is,  create  money  by  im- 
printing the  hill  of  exchange  with  the  stamp  of  public  authority. 


THE  DEMAND  NOTES  OF  1861. 


37 


“ Money  is  the  basis  of  commerce.  To  multiply  money  is  to 
multiply  commerce.  The  precious  metals  cannot  he  multiplied 
at  pleasure;  it  is  necessary  to  buy  them  of  the  owners  of  the 
mines.  Paper  can  be  multiplied  at  pleasure  by  the  state  in  pro- 
portion to  its  needs,  and  the  quantity  of  money  can  thus  always 
be  made  equally  approximate  to  the  demand.  Every  emission  of 
paper,  by  increasing  the  money  of  the  nation,  will  increase  its 
commerce,  wealth,  and  power. 

“ The  consequences  of  this  innovation  will  be  not  only  the 
increase  of  the  general  wealth  of  the  country,  but  an  internal 
revolution  in  society ; the  high  interest  of  money  proceeding  from 
its  scarcity,  the  multiplication  of  money  will  lessen  usury  and 
secure  the  state  and  private  individuals  from  the  impositions  of 
monopolizers  of  specie. 

“ The  financial  organization  of  the  state  is  false.  The  state 
takes,  and  does  not  restore ; borrows,  and  does  not  lend ; con- 
sumes, and  does  not  produce.  The  state  should  assume  an  en- 
tirely new  form.  It  should  give  credit,  and  not  receive  it — it 
should  become  a banker.” 

After  a hundred  and  fifty  years,  these  crude  fancies, 
twice  dissipated  by  actual  experiment  in  France,  have 
again  risen,  like  a fog,  upon  our  American  horizon. 


VIII. 

THE  DEMAND  NOTES  OF  1861. 

From  time  to  time  the  Greenback  speakers  and  wri- 
ters have  mentioned  somewhat  vaguely,  as  is  their  cus- 
tom, certain  treasury  notes,  issued  during  the  civil  war, 
which,  being  a full  legal  tender,”  were  and  remained  as 
good  as  gold.  The  phrase,  a full  legal  tender,”  means 
that  the  notes  were  receivable  for  customs,  as  well  as  for 
other  dues  to  and  from  the  Government,  and  for  private 
debts,  and  it  is  contended  that,  under  like  conditions. 


38 


PAPER  MONEY. 


other  notes  would  remain  at  par,  although  not  payable  on 
demand  in  coin. 

The  logical  assumption  is  here  involved  that  these 
notes  were  irredeemable  ; that  they  were  a legal  tender 
for  the  payment  of  private  debts  ; and  that  there  were 
enough  of  them  to  supply  the  circulation  needed  by  the 
business  of  the  country.  If  the  parallel  fails  in  any  of 
these  particulars,  it  fails  to  support  the  conclusion  that 
such  notes  as  the  Greenback  party  now  wishes  to  issue 
would  remain  at  par  with  gold. 

The  parallel  does  fail  at  every  point.  The  notes  were 
demand  notes,  payable  in  coin  ; they  were  not  a legal  ten- 
der ; and  there  were  only  $60,000,000  of  them  altogether. 

These  notes  were  issued  under  the  act  of  July  17, 
1861,  authorizing  the  secretary  of  the  treasury  to  bor- 
row ” for  the  immediate  necessities  of  the  Government 
$250,000,000,  for  which  he  was  to  issue  bonds  or  treas- 
ury notes.  As  a part  of  the  above  loan,”  the  secretary 
was  permitted  to  issue  in  exchange  for  coin,  or  to  pay  for 
salaries  or  other  dues,  not  over  $60,000,000  in  treasury 
notes  “ not  bearing  interest  but  payable  on  demand  ” by 
the  assistant-treasurers  of  the  United  States  at  Phila- 
delphia, New  York,  Boston,  St.  Louis,  or  Cincinnati. 
The  act  provided  that  such  notes  might  be  reissued  until 
December  31,  1862,  when  the  power  to  reissue  them  was 
to  cease  and  determine. 

This  temporary  provision  for  the  urgent  needs  of  the 
Government  was  made  in  July,  1861,  at  the  extra  session 
of  Congress.  On  the  30th  of  December,  1861,  the  banks 
suspended  specie  payments,  and  the  treasury  was  forced 
to  follow  their  example.  Up  to  that  time,  the  demand 
notes  of  the  Government  had  been  as  good  as  gold.  Af- 
ter the  suspension,  they  became  discredited,  and  the  banks 
refused  to  take  them  on  deposit. 


TEE  DEMAND  NOTES  OF  1861. 


39 


In  February,  1862,  Congress  adopted  a financial  sys- 
tem recommended  by  Secretary  Chase.  It  was  decided  to 
issue  $150,000,000  of  United  States  notes  not  bearing  in- 
terest, of  which  $60,000,000  AYere  to  be  in  lieu  of  the 
demand  notes  previously  issued,  which  were  to  be  taken 
up  as  rapidly  as  possible.”  The  new  notes  were  the  legal 
tenders  which  have  now  been  in  circulation  for  sixteen 
years.  The  six  per  cent,  bonds  were  authorized  at  the 
same  time.  To  give  them  some  stable  value,  the  interest 
was  made  payable  in  coin.  To  provide  a market  for 
them,  the  national  banking  act  was  subsequently  passed. 
To  provide  for  the  interest  payments,  the  customs  dues 
were  required  to  be  paid  in  coin.  The  demand  notes  of 
1861  were  receivable  for  all  dues  to  the  Government,  and 
continued  to  be  received  for  customs. 

The  depreciation  of  the  legal  tenders  began  at  once. 
In  October,  1862,  they  were  worth  only  seventy-two  cents 
on  the  dollar.  If  they  had  been  receivable  for  customs, 
they  would  still  have  depreciated.  But,  as  the  customs 
Avere  payable  in  coin,  and  the  small  issue  of  demand  notes 
was  also  receivable  for  customs,  it  followed,  of  course, 
that  the  demand  notes,  for  this  purpose,  were  as  good  as 
gold.  If  there  had  been  more  than  enough  to  pay  the 
duties,  they  would  have  gone  down  with  the  mass  of  irre- 
deemable paper.  It  was  only  the  two  facts  that  the  duties 
were  payable,  with  this  exception,  in  coin,  and  that  the 
issue  of  demand  notes  was  small,  that  kept  them  at  par. 

They  disappeared  rapidly.  Here  are  the  treasury  re- 
ports at  different  dates : 

Demand  Notes  outstanding. 

July  1,  1862 $63,040,000 

Sept.  30,  1863 2,022,1'73 

June  30,  1864 '780,999 

June  30,  1865 4'72,603 

June  30,  1878 62,297 


40 


PAPER  MONEY. 


4 


They  were  mostly  paid  in  for  customs  duties  in  1862, 
it  appears,  and  the  authority  to  reissue  them  would  have 
ceased  with  the  close  of  that  year,  even  if  the  secretary  had 
not  been  directed  to  take  them  up  as  rapidly  as  possible. 

What  this  example  proves  is — 

1.  That  Government  notes  redeemable  on  demand  in 
coin  are  as  good  as  coin.  The  demand  notes  were  as 
good  as  gold  until  after  the  suspension,  in  December,  1861, 
and  were  then  temporarily  discredited. 

2.  That  if  taxes  and  imposts  are  generally  payable  in 
coin,  a small  amount  of  Government  notes,  receivable  for 
dues  to  the  Government,  will  remain  at  par,  although  not 
redeemable  on  demand  in  coin.  This  is,  in  fact,  an  indi- 
rect way  of  redeeming  them.  It  is  as  if  the  Government 
should  pay  the  tax-payer  coin  for  his  notes,  and  then  col- 
lect the  coin  for  his  taxes. 

3.  That  the  legal-tender  quality  of  a paper  currency 
has  no  effect  upon  its  value  in  the  marhet.  The  demand 
notes,  which  remained  at  par,  because  they  were  indirect- 
ly redeemable,  were  not  originally  a legal  tender.  The 
legal-tender  notes  were  the  very  ones  which  depreciated. 
It  was  a mistake  to  declare  our  paper  currency  a legal 
tender,  and  a mistake  which  we  shall  not  repeat  in  time 
of  peace. 


IX. 

THE  ]SrATIO:N^AL  CKEDIT. 

The  third  proposition  of  the  Greenback  party  is  ex- 
pressed by  Mr.  Wendell  Phillips  in  the  aphorism,  Re- 
sumption changes,  by  statute,  the  relations  between  cred- 
itor and  debtor.”  * Unlike  the  first  and  second  proposi- 

^ North  American  Review^  July-August,  1878,  p.  104. 


THE  NATIONAL  CREDIT. 


41 


tions,  this  is  partly  true.  The  purchasing  power  of  our 
currency  was  greatly  diminished  by  the  enormous  issues 
of  paper  during  the  war.  Property  has  not  shrunken 
since  1865,  but  the  dollar  has  grown — that  is  to*  say,  it 
has  returned  to  its  normal  value.  This  was  inconvenient 
for  debtors,  no  doubt ; but  it  was  better  for  the  country. 
Mr.  Phillips  appears  to  think  that  we  might  have  kept  the 
70-cent  dollar  forever ; that  by  some  contrivance,  which 
he  does  not  describe,  v,^e  might  have  prevented  that  dollar 
from  changing,  and  so  might  have  avoided  all  the  incon- 
venience of  coming  back  to  the  dollar  defined  by  the  laws, 
worth  25.8  grains  of  standard  gold. 

The  whole  controversy  turns  upon  this  point.  Those 
of  us  who  believe  that  a resumption  of  specie  payments  is 
essential  to  the  prosperity  of  the  nation,  hold  that  opinion 
because,  in  the  history  of  civilization,  we  find  no  example 
of  an  irredeemable  paper  currency  which  had  any  stable, 
permanent  value.  Assignats^  old  tenor  bills.  Continental 
bills,  they  have  all  alike  gone  down,  down  to  public  bank- 
ruptcy, and  have  drawn  down  private  fortunes  with  them 
in  general  ruin.  The  alternative  was  not  whether  we 
should  retain  an  arbitrary  and  fictitious  measure  of  value, 
or  strive  to  restore  it  to  the  original  standard ; it  was 
whether  we  would  bring  our  currency  back  to  its  nominal 
value,  or  suffer  it  to  go  out  in  utter  worthlessness.  If  we 
had  made,  or  should  now  make,  the  latter  choice,  it  would 
be  followed  by  public  and  private  distress,  such  as,  in  this 
generation,  has  not  been  seen. 

But  there  are  compensations  for  the  inevitable  losses 
attending  a restoration  of  the  normal  standard  of  value. 
It  is  true  that  the  debt  was  contracted  in  a depreciated 
currency.  The  war  had  shaken  our  national  credit,  and 
we  were  only  able  to  borrow  depreciated  dollars  by 
promising  to  pay  good  ones.  We  did  so  promise  ; we  are 


42 


PAPER  MONEY. 


abundantly  able  to  keep  the  promise  ; and  we  don’t  mean 
to  go  into  national  bankruptcy  in  order  to  save  money  by 
a rascally  failure.  If  the  payment  of  the  principal  of  the 
debt  in  good  money  is  a hardship,  it  is  alleviated  by  a 
great  reduction  of  the  burden  of  interest,  and  that  reduc- 
tion is  due  wholly  to  the  improvement  of  our  national 
credit  by  an  honest  endeavor  to  meet  our  obligations 
fairly. 

The  public  debt  reached  its  maximum  in  1865,  and  the 
statement  of  Secretary  McCulloch,  for  October  31,  1865, 
is  the  starting-point  for  all  statistics  concerning  the  ad- 
ministration of  the  finances  since  the  war.  To  that  state- 
ment, the  annual  interest  calculated  at  the  rates  then  paid 
is  here  added  : 


Principal. 


$ 830,000,000  @ 

1,173, 105, 733 
849,861,746 
$2,352,957,479 

455,591,958  bearing 


» 7.3  per  cent. 

6 

6.3 

no  interest. 


$2,808,549,437 

67,158,515  cash  in  Treasury. 
$2,741,390,9^ 


Interest. 

$ 60,590,000 
70,386,344 
17,492,687 
$148,468,931 


The  statement  published  September  1,  1878,  by  Secre- 
tary Sherman,  with  the  annual  interest  at  the  rates  now 
paid,  stands  as  follows  : 


Principal. 


Interest. 


$ 723,553,850  @ 6 per  cent. 

703,266,650  6 

250,000,000  4i 

141,850,000  4 

14,000,000  8 

$1,832,670,500  6.2 


468,546,484  bearing  no  interest. 
$2,301,216,984 

300,002,881  cash  in  Treasury. 
$2,001,214,103 


$43,413,231 

35,163,332 

11,250,000 

6,674,000 

420,000 

$95,920,663 


THE  NATIONAL  CREDIT. 


43 


'Now,  comparing  these  two  official  statements,  it  ap- 
pears— 

1.  That  $520,000,000  of  the  interest-bearing  debt  have 
been  paid. 

2.  That  the  annual  interest  account  has  been  reduced 
from  $148,000,000  to  $96,000,000 — more  than  a third. 

3.  That  the  average  rate  of  interest  has  been  reduced 
from  6.3  to  5.2  per  cent. 

4.  That  the  amount  of  the  debt  on  which  we  pay  no 
interest  is  $13,000,000  more  than  in  1865. 

5.  That  the  amount  of  cash  on  hand  has  been  increased 
from  $67,000,000  to  $300,000,000. 

6.  That  the  net  debt,  after  deducting  cash  in  the 
Treasury,  is  $740,000,000  less  than  in  1865.  In  other 
words,  we  have  either  paid  or  have  cash  on  hand  to  pay 
one-fourth  of  the  entire  debt  of  1865. 

This  is  not  all.  The  population  and  wealth  of  the 
country  have  been  increasing,  while  the  debt  has  been  di- 
minishing. The  debt  was  $78.25  per  capita  in  1865,  and 
$41.67  in  1878  ; the  annual  interest  was  $4.29  capita 
in  1865,  and  $1.97  in  1878.^  And  meanwhile  our  paper 
dollars,  worth  seventy  cents  in  1865,  have  advanced  to  par. 

The  Government,  at  the  close  of  the  war,  was  in  the 
condition  of  a wealthy  corporation  which  has  met  with 
great  and  sudden  losses,  and  has  been  compelled  to  use 
its  credit  to  the  utmost  to  procure  ready  money.  The 
rules  which  have  guided  the  financial  policy  of  the  last 
thirteen  years  have  been  the  ordinary  rules  of  business 
prudence  : 1.  Meet  all  engagements  punctually  and  fairly. 
2.  Improve  the  credit  so  earned  and  maintained,  to  make 
better  terms.  It  is  because  we  have  paid  off  $520,000,000 
of  our  maturing  obligations,  as  agreed,  that  we  have  been 


^ Treasury  Statement,  September  13,  ISYS. 


44 


PAPER  MONEY. 


able  to  reduce  our  average  interest  rate  from  6.3  to  5.2 
per  cent.,  and  that  our  demand  notes  have  advanced  from 
70  to  par. 

The  tax-payers  have  received  the  full  benefit  of  the 
saving  in  interest  and  of  other  economies.  In  his  speech 
at  Minneapolis,  on  the  5th  of  September,  1878,  President 
Hayes  called  attention  to  the  fact  that  the  national  taxes 
this  year  are  $247,000,000  less  than  in  1866,  when  they 
amounted  to  $488,000,000. 

Nothing  like  this  achievement  has  ever  been  known 
before.  In  sixty-three  years,  England  has  not  paid  so 
much  of  the  principal  of  the  English  debt  as  has  been 
paid  by  the  United  States  in  thirteen.  Financial  jugglers 
and  miracle-workers  may  promise  better  results,  but  the 
world’s  history  is  full  of  warnings  against  their  schemes, 
and  they  have  given  us  hitherto  nothing  but  the  85-cent 
silver  dollar,  which  is  now  the  only  obstacle  preventing 
the  funding  of  our  entire  debt  at  4 per  cent. 


X. 

THE  RECENT  EXAMPLE  OF  FRANCE. 

Mr.  Kelley,  of  Pennsylvania,  thinks  that  the  manage- 
ment of  the  French  finances,  since  the  war  with  Prussia 
in  1870,  has  been  admirable,  which  is  true  ; and  that  it 
has  been  greatly  superior  to  the  administration  of  the 
American  finances,  just  described,  which  is  not  true.  In 
his  seat  in  Congress,  and  in  contributions  to  the  press, 
Mr.  Kelley  has  asserted  that  the  French  method  of  ap- 
proaching specie  payments  has  been  by  pouring  out  a 
great  volume  of  paper  money,  stimulating  production, 


THE  RECENT  EXAMPLE  OE  FRANCE. 


45 


and  so  securing  a revenue  and  accumulating  a reserve  of 
coin  without  distressing  the  tax-payers.  He  does  not  say 
that  the  French  debt  has  been  paid,  but  he  speaks  of  the 
payment  of  the  Prussian  indemnity  in  such  a way,  that 
some  of  his  echoes  have  affirmed  that  the  public  debt 
of  France  has  been  paid  off  in  paper,  and  this  alleged 
example  the  American  people  are  invited  to  imitate. 

There  is  but  one  system  of  sound  finance,  and  the 
French  system,  which  Mr.  Kelley  admires,  is  precisely 
like  our  own.  The  French  Government  has  borrowed 
money  to  meet  its  maturing  obligations,  has  paid  them, 
principal  and  interest,  in  coin,  has  meanwhile  contracted 
the  volume  of  its  paper  currency,  accumulated  a large 
reserve  of  coin,  and  resumed  specie  payments  in  January 
last  as  we  shall  resume  in  January  next. 

The  French  declaration  of  war  with  Germany  was 
made  on  the  15th  of  June,  1870.  The  armistice  was 
signed  on  the  28th  of  January,  1871,  and  was  followed 
by  the  preliminary  treaty  of  peace  a month  later.  Dur- 
ing the  six  months  of  active  hostilities  the  national  debt 
of  France  was  doubled.  By  the  terms  of  the  treaty  an 
indemnity  of  $1,000,000,000  was  to  be  paid  to  Germany 
v/ithin  four  years.  The  French  Government  had  already 
borrowed,  during  the  war,  $573,000,000.  The  national 
loan  of  1871  brought  in  $445,000,000  more  ; the  loan  of 
1872,  $700,000,000.  These  are  net  figures.  The  five  per 
cents  of  the  national  loan  amount  to  $1,640,000,000,  but 
they  were  sold  at  83,  and  other  expenses  brought  the  net 
receipts  down  to  $1,145,000,000.  This  is  the  way  in 
which  the  $1,000,000,000  were  raised  for  Germany.  The 
French  Government  owes  every  dollar  of  the  indemnity 
to-day,  and  is  paying  interest  Upon  it.  Furthermore,  the 
debt  has  been  steadily  increasing  ; the  revenue  of  France 
is  less  than  the  annual  expenses  ; the  debt  of  France  was 


46 


PAPEK  MONEY. 


♦ 


$3,750,000,000  in  1875,  and  is  now  $4,696,000,000/  The 
burden  of  interest  in  1875  was  $150,000,000,  which  is  more 
than  the  United  States  had  to  pay  in  1865,  and  we  have 
since  reduced  the  interest  account  in  this  country  to  $96,- 
000,000,  while  the  French  have  increased  theirs. 

The  management  of  the  French  currency  is  also  in- 
structive. The  volume  of  paper  in  July,  1870,  was 
$251,000,000,  backed  by  a specie  reserve  of  $229,000,000. 
In  August  specie  payments  were  suspended  and  the  paper 
v/as  made  a legal  tender.  The  volume  of  paper  increased 
to  $442,000,000  in  June,  1871,  and  reached  the  maximum 
of  $602,000,000  in  November,  1873,  the  specie  reserve 
having  meanwhile  dwindled  to  $146,000,000.  Then  be- 
gan the  process  of  recuperation.  The  date  January  1, 
1878,  was  fixed  for  resumption.  By  November,  1877,  the 
volume  of  paper  was  reduced  to  $491,000,000,  and  the  re- 
serve had  increased  to  $442,000,000,  of  which  $277,000,- 
000  were  gold  and  $165,000,000  silver.  The  paper  rose 
to  par  long  before  the  date  fixed,  and  only  $20,000,000  of 
coin  were  called  for  when  specie  payments  were  resumed. 
When  silver  bullion  began  to  depreciate,  the  French 
Government  ceased  to  coin  silver.  The  gold  standard  is 
practically  established,  and  the  French  notes  are  at  par 
with  gold. 

The  situation  of  the  United  States  is  in  every  way 
better  than  that  of  France.  France  had  a heavy  debt  at 
the  beginning  of  her  war  ; we  had  none.  The  French 
debt  is  twice  as  large  as  ours  to-day,  and  it  is  increasing. 
The  government  of  a country  produces  nothing  ; it  has 
only  two  ways  to  procure  money — by  taxation,  and  by 

^ “American  Almanac”  for  1878,  p.  406.  On  p.  801  of  this  useful 
manual,  prepared  by  Mr.  Spolford,  the  librarian  of  Congress,  will  be 
found  a full  account  of  the  manner  in  which  the  Prussian  indemnity  was 
paid. 


# 


CHEAP  MONEY. 


47 


borrowing.  The  French  borrow  ; we  fax  ; it  is  only  by 
taxation  that  a debt  can  be  paid.  The  French  Govern- 
ment last  year  reported  a deficiency  of  $5,000,000  ; the 
United  States  had  a magnificent  surplus  of  $31,000,000. 
Year  by  year  their  debt  has  been  increasing  ; since  1865 
we  have  paid  off  $520,000,000  of  ours.  And  yet  the* 
French  Government  can  borrow  to-day  at  three  per  cent., 
while  we  pay  four.  Why  ? Because  in  France  there  is 
no  organized  movement  to  damage  the  credit  of  the 
Government,  such  as  we  have  had  here  during  the  last 
three  or  four  years.  Because  France,  though  poor,  in- 
tends to  pay  and  does  pay  her  debts  honestly  and  prompt- 
ly, while  the  talk  in  the  American  Congress  and  in  some 
American  newspapers  leads  to  the  opinion  that  we, 
though  rich,  do  not  mean  to  pay  our  debts  honestly,  and 
there  is  no  way  to  collect  a national  debt  except  by  the 
costly  and  uncertain  process  of  war. 


XI. 

CHEAP  MOl^^^EY. 

In  the  report  already  mentioned,^  Senator  Jones  in- 
timates that,  when  industry  has  been  checked,  commerce 
paralyzed,  and  enterprise  crushed  by  a protracted  shrink- 
• age  in  the  volume  of  money,  with  falling  prices,  the  stim- 
ulus of  rising  prices  may  be  a necessary  temporary  treat- 
ment. The  demand  for  cheap  money  is,  in  effect,  a de- 
mand for  higher  prices.  The  advocates  of  a depreciated 
currency  are  perfectly  correct  in  their  opinion  that  an 
abundant  currency  means  long  prices,  and  a contracted 


* “ Report  of  the  Silver  Commission,”  p.  49. 


48 


PAPER  MONEY. 


m 


currency  means  short  prices.  The  relative  value  of  all 
the  goods  to  be  exchanged  must  be  expressed  in  terms  of 
the  medium  of  exchange.  It  is  as  if  all  the  property  of 
the  nation  were  put  into  a joint-stock  company,  the  shares 
being  represented  by  the  currency.  If  it  should  be  agreed 
to  increase  the  number  of  shares  twofold,  in  other  words, 
to  double  the  currency,  the  property  remaining  the  same, 
then  two  shares  would  stand  for  no  more  property  than 
one  share  represented  before.  In  other  words,  prices 
would  advance  100  per  cent. 

The  advocates  of  cheap  money  fully  comprehend  this 
principle  ; they  are  acting  upon  it  ; and  they  justify  their 
action  by  the  argument  that  the  money-lenders  are  striv- 
ing to  produce  an  unnatural  scarcity  of  cash,  in  order  to 
increase  the  value  of  their  own  commodity  and  depreciate 
all  other  goods.  To  establish  this  position  they  point  to 
the  semi-annual  dividends  of  the  national  banks  on  the 
one  hand,  and  the  weekly  list  of  mercantile  failures  on 
the  other.  The  list  of  failures  is  undoubtedly  the  result 
of  a falling  market.  Merchants  who  buy  on  time  when 
goods  are  falling  find  it  hard  to  meet  their  maturing  notes. 
It  is  true,  too,  that  the  pressure  upon  the  banks  for  loans 
increases  at  such  times,  and  that  they  are  rarely  losers. 

There  is  nothing  to  be  gained  by  misrepresentation. 
Whatever  is  true  in  the  cheap-money  theory  must  be  con- 
ceded. It  is  true  that  an  abundant  currency  tends  to  in- 
crease the  prices  of  all  kinds  of  goods  and  of  labor.  It 
is  true  that  a contraction  of  the  currency  tends  to  reduce 
prices  and  wages.  It  is  true  that,  while  this  process  of 
reduction  is  going  on,  prudent  banking  is  safer  and  more 
profitable  than  most  other  kinds  of  business.  All  these 
l^remises  may  and  must  be  granted,  but  there  is  still  a 
fatal  defect  in  the  argument. 

Granting  that  a contraction  of  the  currency  is  an  evil. 


CHEAP  MONEY. 


49 


it  may  be  nevertheless  a necessary  evil.  The  loss  of  a 
limb  is  a misfortune,  but  an  amputation  is  sometimes  the 
only  way  to  save  life.  If  the  currency  could  go  on  ex- 
panding forever,  with  prices  and  wages  continually  rising, 
trade  would  no  doubt  be  brisk,  though  it  is  certain  that 
the  substantial  reward  of  labor,  the  margin  of  saving, 
would  not  be  increased.  But  there  is  a limit  to  the  co- 
hesive force  of  an  expanding  currency ; the  bubble 
bursts  ; the  lying  paper  which  calls  itself  a dollar  when 
it  is  only  worth  fifty  cents,  or  less,  is  at  last  seen  to  be 
worthless.  When  that  time  comes,  it  is  always  found 
that  the  wealthy,  though  they  lose  much,  have  saved 
something  ; but  the  poor,  whose  subsistence  depends  upon 
the  recompense  of  their  daily  toil,  have  lost  everything. 

'No  law  of  Congress  can  make  a paper  dollar  worth  a 
dollar  in  gold  except  by  decreeing  that  somewhere  and 
by  somebody  a dollar  in  gold  shall  be  paid  for  it  on  de- 
mand. But  the  paper  dollar  is  the  poor  man’s  dollar. 
The  current  dollar,  whether  eighty-five  cents  in  silver 
or  seventy  cents  in  paper,  is  the  dollar  that  is  paid  for 
wages,  paid  on  insurance  policies  and  savings-bank  books. 
That  dollar  ought  to  be  as  good  as  the  dollar  paid  to  the 
holders  of  the  Government  bonds.  The  only  way  to 
make  it  as  good  is  by  contraction.  In  January,  1877,  the 
paper  dollar  was  worth  ninety-four  cents,  and  Western 
spring-wheat  flour  was  worth  $5.70  to  $5.95  in  New  York. 
In  January,  1878,  the  paper  dollar  was  worth  ninety- 
eight  cents,  and  the  quotation  for  the  same  brands  of 
flour  was  $5.25  to  $5.50.  This  difference  of  forty-five 
cents  goes  into  the  pocket  of  the  consumer,  and  that  is 
what  contraction  means  to  him. 

It  is  contended  that  the  farmers  ought  to  want  our 
paper  currency  depreciated  again,  so  as  to  get  the  nom- 
inally higher  prices  of  1865  for  their  produce  ; and  by 
3 


50 


PAPER  MONEY. 


the  same  rule  they  ought  to  pray  for  short  crops,  which 
would  have  the  same  effect.  The  farmers  of  this  country 
do  not  need  to  be  told  that  it  is  not  for  their  advantage  to 
get  a higher  price  for  corn  and  potatoes,  and  pay  a pro- 
portionally higher  price  for  sugar  and  molasses,  and  be 
burdened  besides  with  the  taxes  of  1865.  The  farmers 
who  were  getting  in  debt  in  1865  are  now  getting  out, 
and  have  no  desire  to  be  ground  in  that  mill  again  for  the 
benefit  of  the  speculators  in  the  gold  market. 

But  the  farmers  are  not  the  only  people  who  are  inter- 
ested in  this  matter.  The  industrious  population  of  the 
United  States,  the  people  whose  labor  supports  the  whole 
community,  were  grouped  by  the  last  census  as  follows  : 


Engaged  in  agriculture 6,922,471 

Manufactures  and  trades 2,707,421 

Traffic  and  transportation 1,191,238 

Personal  and  professional  service 2,684,793 


Total 12,505,923 


Now  the  farmers  would  be  helped  by  a rise  in  the 
price  of  farm-products  if  other  goods  did  not  rise  at  the 
same  time.  The  traders  would  be  helped  by  a rise  in  the 
goods  in  which  they  deal  if  farm-products  did  not  rise  at 
the  same  time.  A simultaneous  rise  of  farm-products 
and  other  goods  to  the  figures  of  1865  would  benefit 
neither  of  these  classes,  and  would  injure  all  the  others, 
who  are  engaged  in  professional  pursuits,  in  manufact- 
ures and  mechanical  trades,  in  transportation  and  in  per- 
sonal service  for  wages.  A general  inflation  of  prices — 
and  that  is  what  cheap  money  means — is  a direct  injury 
to  more  than  half  of  the  busy  community,  and  brings  no 
real  advantage  to  the  rest.  The  only  men  who  profit  by 
the  general  misfortune  in  such  times  are  the  men  with 


# 


CHEAP  MONEY. 


51 


ready  money  to  take  advantage  of  the  necessities  of  their 
neighbors. 

There  is  no  such  arbitrary  classification  in  real  life  as 
is  made  by  the  cheap-money  theorists.  Their  theory  con- 
siders society  as  composed  of  two  great  classes — sellers 
holding  all  the  goods  and  real  property,  and  buyers  hold- 
ing all  the  money.  There  are  no  such  classes.  We  are 
all  buyers  and  all  sellers.  The  farmer  sells  wheat  and 
corn,  but  he  buys  tea  and  coffee.  The  manufacturer  sells 
cloth,  but  he  buys  wool  and  cotton.  The  laborer  sells  his 
day’s  work,  and  buys  food  and  clothing.  There  is  no 
class  absorbing  all  the  money.  The  great  money-lenders 
are  the  savings-banks  and  insurance  companies  holding 
large  sums  in  trust  for  many  persons  of  small  means. 
The  interest  on  money,  in  ordinary  times,  is  too  small  to 
satisfy  enterprising  men  ; it  has  shrunken  already  from 
seven  and  three-tenths  or  eight  per  cent.,  which  were 
common  rates  a few  years  ago,  to  five  or  six  per  cent.,  and 
this  shrinkage  is  a direct  invitation  and  encouragement 
to  enterprise. 

What  we  all  need,  as  the  essential  condition  of  settled 
prosperity,  is  a currency  of  permanent  value.  The  wis- 
dom of  man  has  failed  to  discover  any  value  so  free  from 
sudden  fluctuations  as  the  value  of  the  precious  metals. 
Paper  we  must  have,  for  convenience,  but,  to  keep  it 
steady,  it  must  be  exchangeable  at  will  for  something  of 
real  worth. 


52 


PAPER  MONEY. 


4 


XII. 

INTERCONVEETIBLE  BONDS. 

Every  one  of  the  propositions  of  the  Greenback  the- 
ory, except  the  last,  has  now  been  considered. 

To  the  first,  the  reply  was  made  that  the  American 
colonies  undertook  to  pay  the  expenses  of  the  Revolu- 
tionary War  in  legal-tender  notes,  and  their  currency,  to 
use  General  Butler’s  striking  figure,  “ went  out,”  like  a 
candle  in  a storm.  The  objection,  that  the  colonies  had 
no  national  government  to  guarantee  the  Continental  cur- 
rency, was  met  by  the  example  of  France  in  1789,  a nation 
consolidated  a thousand  years  before  by  Charlemagne. 

The  advocates  of  the  new  theory — which  after  all  is 
only  an  old  one,  tried  and  proved  worthless — took  refuge 
in  their  second  proposition,  that  a full  legal-tender  note, 
containing  no  promise  to  pay  in  something  else,  would  not 
depreciate.  The  French  assignats^  they  said,  promised 
payment  in  land.  The  Continental  currency  promised  to 
pay  Spanish  dollars.  Our  notes  should  be  pay  in  them- 
selves, like  the  notes  of  the  Bank  of  Venice,  which  were 
not  redeemable  but  remained  at  par  for  centuries.  This 
means  that,  if  the  wording  on  the  bits  of  paper  should  be 
cunningly  changed,  the  currency  might  become  more  val- 
uable. The  reply  was,  first,  that  the  old  tenor  bills,  issued 
during  the  French  and  Indian  wars,  promised  nothing, 
but  were  receivable  for  all  dues  and  were  declared  to  be 
‘Gn  value  equal  to  money;”  and  secondly,  that  the  so- 
called  notes  of  the  Bank  of  Venice  were  partly  interest- 
bearing  securities  like  the  British  consols,  and  partly  cer- 
tificates of  deposit  payable  in  gold  or  silver  on  demand. 
The  old  tenor  bills  were  exactly  what  the  new  theory  calls 
for,  and  they  depreciated  91  per  cent.  ; the  Bank  of  Venice 


INTERCONVERTIBLE  BONDS. 


53 


bills  were  payable  in  specie  on  demand,  and  our  currency 
will  be  equally  good,  when  it  is  paid  in  the  same  way. 

The  argument  from  the  demand  notes  of  1861,  to 
show  that  a ‘^full  legal-tender”  note,  though  in(5onverti- 
ble,  would  not  depreciate,  was  met  by  showing  that  the 
demand  notes  were  originally,  and  have  always  been  prac- 
tically, payable  in  coin. 

It  is  true,  as  stated  in  the  third  proposition,  that  the 
debt  was  contracted  in  a depreciated  currency  ; but  we 
promised  to  pay  it  in  good  money,  and  it  has  been  shown 
that  we  are  abundantly  able  to  keep  the  promise.  It  is 
also  true  that  we  have  much  to  lose  and  nothing  to  gain 
by  breaking  it. 

The  example  of  France  has  been  cited  to  support  the 
fourth  proposition.  France,  we  have  been  told,  issued 
paper  enough  to  float  all  her  liabilities,  including  the  Prus- 
sian indemnity,  and  the  paper,  being  a ^^full  legal  tender,” 
only  depreciated  about  two  and  one-half  per  cent,  and 
soon  recovered,  so  that  it  was  at  par  with  coin.  On  ex- 
amination, it  is  found  that  France  borrowed  the  money  to 
pay  the  Prussian  indemnity  at  flve  per  cent.,  issuing  there- 
for bonds  payable,  principal  and  interest,  in  coin,  and 
then,  instead  of  paying  any  part  of  the  interest-bearing 
debt,  contracted  the  paper  currency,  collected  a strong 
metallic  reserve,  and  resumed  specie  payments.  In  short, 
France  has  done,  not  what  the  Greenback  theorists  want 
us  to  do,  but  precisely  what  the  United  States  are  doing. 

As  to  the  fifth  proposition,  the  history  of  the  world, 
the  warnings  of  statesmen  in  every  age,  and  our  own  re- 
cent experience,  have  shown  that,  when  prices  are  raised 
by  an  inflation  of  the  currency,  they  do  not  advance  uni- 
formly. In  such  times,  speculation  thrives  and  legitimate 
industry  suffers.  Wages  increase  slowly,  while  the  cost 
of  living  advances  rapidly.  The  great  body  of  the  peo- 


54 


PAPER  MONEY. 


pie  are  robbed,  they  know  not  bow  ; their  money  multi- 
plies, but  its  purchasing  power  evaporates  ; and  the  few 
who  are  shrewd  or  lucky  amass  great  fortunes.  Further- 
more, such  inflation  of  prices  is  necessarily  unstable,  and 
sooner  or  later  the  shrinkage  of  nominal  values  comes 
with  all  its  train  of  disasters. 

This  brings  us  to  the  last  proposition.  Nothing  else 
is  left  of  the  theory.  The  facts  contradict  it  at  every 
point  but  this.  But  is  it  not,  after  all,  possible  to  create 
a paper  currency,  which  will  be  stable,  without  making  it 
redeemable  in  specie?  A token  currency,  kept  within 
bounds,  circulates  at  a nominal  value  much  larger  than 
its  real  value.  Why  may  not  a token  currency  be  printed 
on  paper,  and  made  to  answer  for  all  domestic  exchanges  ? 

There  would  be  no  great  advantage  in  it,  since  the  same 
result  may  certainly  be  secured  by  redemption  on  demand 
in  coin  ; but  is  it  not  abstractly  possible  ? and  might  not 
some  small  saving  be  made  by  releasing  the  coin  reserves 
and  making  interconvertible  bonds  do  duty  instead  ? 

Well,  that  too  has  been  tried.  In  1812  we  had  a war 
with  England.  Specie  payments  were  suspended,  except 
in  New  England,  August  31,  1814.  Peace  was  restored, 
February  11,  1815.  Specie  payments  were  resumed  in 
1817.  Here  was  a period  of  three  years  of  inflation. 

The  bank  circulation  ran  from  $29,000,000  in  1811  up  to 
$99,000,000  in  1815.  The  United  States  Treasury  issued 
$36,000,000  of  notes  before  February  24,  1815,  and  on 
that  day  Congress  authorized  $25,000,000  more.  The 
treasury  notes  were  a full  legal  tender,”  receivable  for 
all  duties  and  taxes,  but — they  were  depreciated  from 
eight  to  ten  per  cent,  below  the  notes  of  the  private 
banks  in  New  England,  which  paid  specie  on  demand. 

The  act  of  February  24,  1815,  authorized  the  secretary 
of  the  treasury  to  issue  notes  without  any  specified  date  ^ 


INTERCONVERTIBLE  BONDS. 


65 


of  payment  but  receivable  in  all  payments  to  the  United 
States.  The  scheme  might  have  been  planned  by  some 
advocate  of  the  modern  ‘^American  system  of  finance.” 
The  notes  of  a less  denomination  than  $100  bore  no  in- 
terest, and  were  to  be  exchanged,  on  demand,  in  sums  of 
not  less  than  $100,  for  “ certificates  of  funded  stock  bear- 
ing interest  at  seven  per  cent.”  Of  course,  this  arrange- 
ment gave  stability  to  the  whole  circulation,  and  brought 
the  treasury  notes  to  par  ! Not  at  all.  Secretary  Dallas 
says,  in  the  Treasury  report  for  1815  : It  was  soon 
ascertained  that  the  small  treasury  notes,  fundable  at  an 
interest  of  seven  per  cent.,  though  of  a convenient  de- 
nomination for  common  use,  would  be  converted  into 
stock  almost  as  soon  as  they  were  issued.”  ^ 

This  was  the  first  experiment  with  interconvertible 
bonds  in  the  United  States.  It  simply  served  to  increase 
the  interest-bearing  debt,  and  the  amount  might  as  well 
have  been  borrowed  at  seven  per  cent,  in  the  outset, 
without  the  formality  of  issuing  the  money”  which, 
though  of  a convenient  denomination  for  common  use, 
would  not  stay  out  but  was  converted  into  stock  as  fast 
as  it  could  be  printed. 

There  is  no  incantation  by  which  paper  can  be  invested 
with  real  value.  It  can  bear  a promise,  and  if  the  promise 
is  good  the  paper  will  be  good  ; but  there  is  no  formula 
which  will  make  the  paper  worth  more  than  the  promise, 
or  worth  anything  at  all  without  a promise. 


See  “Finance  Report,”  1875,  pp.  191,  205. 


56 


PAPER  MONEY. 


XIII. 

THE  AMERICAN  STSTEM  OF  FINANCE. 

In  his  speech  in  Congress  on  the  12th  of  January, 
1869,  General  Butler  first  spoke  of  an  American  system 
of  finance,  differing  totally  from  the  financial  systems  of 
Europe,  and  better  adapted  to  the  institutions  of  a free, 
enterprising,  and  independent  people.”  In  April,  18T8, 
this  contribution  to  the  glory  and  dignity  of  the  Republic 
, was  supplemented  by  the  promulgation  of  an  American 
system  of  astronomy.  The  Rev.  John  Jasper,  of  Rich- 
mond, Virginia,  is  a colored  preacher,  of  an  original  turn 
of  mind,  like  some  of  our  senators  and  representatives  in 
Congress.  So  he  has  been  investigating  the  motions  of 
the  heavenly  bodies  for  himself,  just  as  they  have  been 
investigating  the  laws  of  finance,  and  beginning  with  a 
mind  quite  free  from  antiquated  prejudices,  he  has  suc- 
ceeded, like  them,  in  reaching  some  quite  surprising  con- 
clusions. 

Brother  J asper,  using  his  own  eyes,  perceived  that  the 
sun  moves  round  the  earth,  just  as  Brother  Butler  per- 
ceives that  the  government  stamp  upon  any  material — 
gold,  silver,  copper,  or  paper — creates  money.  For  Jas- 
per, no  further  demonstration  was  needed  ; but,  to  help 
the  feebler  minds  of  his  congregation,  obscured  by  the 
traditions  of  the  schools,  he  turned  to  the  sacred  writ- 
ings, just  as  Brother  Butler  turned  to  Ecclesiastes  to  show 
that  he  that  loveth  silver  shall  not  be  satisfied  with  sil- 
ver,” since  we  want  the  greenback  for  our  currency  and 
mean  to  have  it.  Brother  Jasper  found  in  Genesis  that 
the  sun  was  set  in  the  firmament ; and  in  Psalms,  that  his 
going  forth  is  from  the  end  of  the  heaven,  and  his  circuit 
unto  the  ends  of  it  ; and  in  Ecclesiastes,  which  seems  to 


THE  AMERICAN  SYSTEM  OF  FINANCE. 


57 


be  an  extremely  useful  book  to  the  brethren,  that  the  sun 
ariseth,  and  the  sun  goeth  down  and  hasteth  to  his  place 
where  he  arose  ; and  in'Job,  that  the  earth  hangeth  upon 
nothing. 

The  promulgation  of  this  theory  stirred  up  a fierce 
controversy,  and  Brother  Jasper  was  compelled  to  repeat 
his  sermon.  The  whole  city  turned  out  to  hear  him. 
Floor  and  gallery  were  crowded,  as  the  two  chambers  of 
Congress  were  crowded,  from  time  to  time,  during  the 
silver  debate.  State  ofiicials  and  the  cream  of  white  so- 
ciety in  Richmond  sat  shining  among  the  black  faces  of 
the  congregation,  as  the  brilliant  uniforms  of  the  diplo- 
matic corps  and  the  gay  bonnets  of  the  Washington  belles 
shone  in  contrast  to  the  black  coats  of  the  honorable  sen- 
ators and  representatives. 

Brother  Jasper  enjoyed  a triumph  almost  as  complete 
as  if  the  question  had  been  put  to  vote.  If  there  was 
not  the  solid,  numerical  satisfaction  of  196  yeas  to  73 
nays,  as  in  the  House,  or  46  yeas  to  19  nays,  as  in  the 
Senate,  there  was  more  applause  than  the  rules  of  Con- 
gress permit.  Brother  Bland,  to  be  sure,  got  a round  of 
cheers  when  he  said,  “ If  we  cannot  get  free  coinage  of 
silver,  I am  in  favor  of  issuing  paper  money  enough  to 
stuff  down  the  bondholders  until  they  are  sick,”  but  this 
was  exceptional  ; the  Senate  listened  in  decorous  silence, 
when  Brother  Jones,  of  Nevada,  said  that  the  greenbacks 
are  sufficiently  redeemed  by  the  services  of  Congress,  of 
the  courts,  and  of  the  other  departments  of  the  Govern- 
ment, and  that  he  hoped  no  other  redemption  would  be 
had  ; Brother  Steele,  of  North  Carolina,  received  no  re- 
sponse, except  the  vote  of  the  House,  when  he  expressed 
the  opinion  that,  if  Congress  could  make  ninety  cents’ 
worth  of  silver  a dollar,  it  was  the  duty  of  Congress  to 
do  it ; and  Brother  Merrimon,  of  the  same  state,  won  no 


58 


PAPER  MONEY. 


i 


applause  by  the  declaration  that,  if  it  suits  us  to  make 
fourteen  ounces  a pound,  we  will  do  it. 

Brother  J asper,  on  the  other  hand,  was  encouraged  at 
every  step  of  his  argument  by  sympathetic  utterances. 
As  he  cited  one  convincing  passage  after  another,  the  re- 
sponses came  from  every  part  of  the  house,  Dat’s  so,” 
He’s  got  de  Bible  on  dem,”  “ Now  I knows  de  sun  is 
movin’,”  Yes,  Lord,”  Honey,  you’s  tellin’  de  truth,” 
and  Give  it  to  dem.  Brother  Jasper.” 

What  are  the  cold  demonstrations  of  doctrinaires  to 
the  warm  approval  of  a popular  demonstration  like  this  ? 
Brother  Thurman  thought  it  would  require  great  courage 
for  any  man  to  say  to  two-thirds  of  the  Senate  and  two- 
thirds  of  the  House  of  Representatives,  “ This  is  a swin- 
dling bill,  and  you  are  a set  of  swindlers.”  What  super- 
human audacity,  then,  would  he  display  who  should  say 
to  Brother  Jasper  and  his  congregation,  ^^This  is  a fool- 
ish proposition,  and  you  are  a set  of  fools  ? ” 

Brother  Maxey,  of  Texas,  observed,  during  a remark- 
able night  session  of  the  Senate,  that  every  nation,  which 
has  any  independence  of  character  about  it,  has  its  own 
standard  of  weights  and  measures,  and  its  own  stand- 
ard of  coin.”  Brother  Jasper  supplements  this  observa- 
tion by  tendering  to  us  also  a national  system  of  astrono- 
my. The  ancient  Europeans  believed  that  the  earth  was 
supported  upon  the  shoulders  of  Atlas  ; the  Asiatics,  that 
it  rested  upon  the  back  of  an  elephant,  and  he  upon  a tor- 
toise ; the  modern  Europeans  will  have  the  earth  bound 
to  the  sun  by  the  force  of  gravitation  ; why  should  we 
have  a continent  to  ourselves  if  we  are  to  be  restricted  to 
these  poor  conceptions  ? Consider  our  resources,  the  mag- 
nitude of  our  country,  the  grandeur  of  our  institutions  ! 
We  must  have  an  astronomy  of  our  own,  and  in  that 
astronomy  the  earth  must  be  the  central  body,  and  on  the 


THE  AMERICAN  SYSTEM  OF  FINANCE. 


59 


earth  the  United  States  must  figure  as  they  do  in  the 
school  geographies,  with  a map  for  each  state,  and  one 
apiece  for  Europe,  Asia,  Africa,  South  America,  and  Aus- 
tralia. 

It  is  true  that  Brother  Jasper’s  theory  is  not  new  : it 
is  the  Ptolemaic  theory  revived.  So,  also,  the  theory  of 
absolute  money  is  not  new  : it  is  Proudhon’s  theory  re- 
vived ; it  is  “ the  bill  of  exchange  stripped  of  the  cir- 
cumstantial qualities  of  date,  place,  person,  object,  and 
term  of  maturity,”  as  described  by  that  philosopher.  But 
nothing  is  strictly  new,  and  both  theories  have  this  com- 
mon recommendation — that  they  are  held  by  no  other 
nation  now  inhabiting  the  face  of  the  earth.  They  are 
distinctively  American  systems,  and  should  be  regarded 
with  equal  complacency  by  all  true  Americans. 


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